United Capital: Stronger Q3 Earnings Signal Higher Payout Prospect In 2023

United Capital Plc recently released its unaudited financial statements for the period-ended September 30, 2022 to investors via the Nigerian Exchange Limited portal, becoming the second quoted company to do so for the period ending 30 September 2022. The result came ahead of the 30-day deadline, making it one of the early filers, as it has done consistently yearly, ensuring that investors are able to plan their trade and investment decisions.

Top and bottom-lines rises by 28.4%y/y and 29.3%y/y apiece

A quick analysis of the results shows that both Gross Earnings (GE) and Profit After Tax (PAT) expanded by 28.4% and 29.3% to ₦14.55 billion and ₦7.71 billion respectively, compared to the numbers achieved in 9M-2021.

Growth in revenue was bolstered by improved returns in the following line items – investment income, and fees & commission income – which grew by  5.1% and 31.1% to settle at ₦6.61bn (45.5% of GE), and ₦6.27bn (43.1% of GE) respectively. This feat is highly commendable and continued to show management deftness in allocation of investment funds on profitable assets class in the Nigerian financial market. Note that the growth recorded by the investment income head was significantly bolstered by upsurge in yields’ environment in the period, following the CBN’s Monetary Policy Committee (MPC) moving of Monetary Policy Rate (MPR) in May by 150bps to 13.0%, and in July by 100bps to 14.0%.

Sturdy GE helps subdue the effect of cost line items

Operating expenses (OPEX), comprising other expense heads, personnel expenses, impairment cost, etc. rose by 35.5% to settle at ₦5.74bn as pressure heightened from office running expenses (+81.6% y/y), professional fees (114.6% y/y), and general admin expenses (+74.7% y/y). Note that the office running cost must have included diesel expenses which has been profiled to carry over 35.0% of companies’ operating cost, following over 100% spike in its’ pump price per liter this year. Note also that the Group’s cost-to-income ratio rose by 2.07% points y/y to 39.5%, largely helped by 28.4% growth in GE compared to 35.5% growth in OPEX. Notably, impairment provision spiked expansively by 77.4% to ₦999.89mn due to allowances provided for loss on financial assets at amortised cost. We think the above is expected, given the repricing of loans arising from the increased benchmark interest rate.

Bottom-line continues to look up as it hits 29.3% y/y

Owing to the upside in revenue growth rate, pre-tax profit rose by 28.6% to settle ₦9.12bn. Notwithstanding the increase in tax liabilities (inclusive of income, education, and information tech taxes), up by 25.0% y/y, profit after tax (PAT) rose by 29.3% to settle at ₦7.71bn. At this income level, earnings per share (EPS) of 129 kobo was achieved, 30.3% higher than the 99 kobo achieved in comparable 9M-2021. Note that the EPS number above is lower than 171 kobo reported by UCAP (the Group) in its released financial document (annualized). Markedly, our computation was based on the nine months period in 2022.

Total asset continues the upward growth

The Group’s total assets rose by 31.4% to settle at ₦595.97bn compared to figure reported in FY-2021. Growth here was chiefly supported by a 326.2% increase in cash and cash equivalent, indicating a good liquidity position. Total liabilities also rose by 33.9% to ₦566.34bn. This increase was substantially bolstered by 29.5% rise in managed funds (short term investments, trust funds and sinking funds). With the faster increased in total liabilities compared to total assets, Shareholders’ fund dropped mildly by 3.0% to ₦29.62bn when compared to ₦30.55bn reported in FY-2021, attributed to ₦9.0bn dividend payout during the period under review. However, when compared to 9M-2021, total equity (shareholders’ fund) rose by 10.2% y/y. With the above performance, return-on-equity (ROE) rose to 26.0%, while return-on-asset (ROA) also increased to 1.29% in 9M-2022.

We have a BUY recommendation on UCAP

We have an existing price target of ₦15.00 per share on UCAP. That gives an upside potential of 32.2% relative to market price of ₦11.35 as at close of market on Friday, 14 October 2022. We therefore uphold our BUY rating on the shares of UCAP. Note that the target price covers period up to February – April 2023 when the FYE-2022 audited results would have been released and dividend announcement observed.

 About United Capital Plc

United Capital Securities Limited is a dealing member of the Nigerian Exchange Group (NGX) and registered by the Securities and Exchange Commission (SEC) as a Broker/Dealer. It is also a registered dealing member of NASD OTC Plc and FMDQ OTC Plc. This enables the Company to deal in over-the-counter Equity and Fixed Income Securities. The Company provides services such as securities dealing, receiving agents to new issues, stockbrokers to primary issues, designated adviser to SME’s and equity portfolio management services.

Technical position of Ucap remains positive with strong momentum to trade above the T line, despite forming a bearish channel on a weekly time frame.  A breakout of the top supply line of the channel, which is a resistance level, will usher in a new rally that may likely touch the strong resistance level of N14.15.  As price action of UCap reveals a buying sentiment in an above-average traded volume on a weekly chart investors and traders in the market should look the way of this stock for different investment objective.