Snapshot:

• Gross Earnings up 10% y/y – 5% ahead of analyst's estimate 

• Loan portfolio moderates further – estimate revised lower for FY’18 

• Q2 delivers strong numbers – albeit capped by higher tax rate 

• N0.20 interim dividend per share proposed 

Earnings rise y/y despite missing estimates marginally 

03 August 2018 : UBA released its H1’18 results, posting modest top and bottom line y/y performances. Whilst the top line performance came in 5% ahead of analyst's estimate, bottom line missed their estimate mildly by 2% - following a higher than expected effective tax rate. As against the trend observed across a number of other banks, performance in the second quarter of the year remained strong. Particularly, Gross Earnings rose 5% q/q to N125 billion (H1’18: N245 billion) – supported by an impressive 39% q/q rise in Non-Interest Income amidst a modest 5% q/q growth in Interest Income. 

Also, despite a notable rise in loan loss provision within the quarter (N5.3 billion vs. Q1’18: N1.5 billion), Operating Income rose 13% q/q to N85.6 billion – ahead of analyst's N81.8 billion estimate. Although Operating Expense rose 9% q/q to N54.0 billion (pressured by the annual AMCON levy of N14.7 billion due every second quarter of the year), Q2’18 PBT still came in strong - up 19% q/q at N31.6 billion and beating analyst's N29.5 billion estimate. However, following a significantly higher than expected effective tax rate of 37% in Q2’18 standalone vs. analyst's 22% estimate and prior year’s 17%, PAT was down 16% q/q to N20.0 billion. 

Despite the slower run rate in Q2’18, PAT for the half year period was up by 3% y/y to N43.8 billion – albeit marginally below analyst's N44.7 billion estimate. At H1’18 run rate, the annualised EPS for FY’18 comes to N2.41. The Board of Directors declared an interim dividend of N0.20 per share - translating to an interim dividend payout ratio of 17% and a dividend yield of 2.5%. 

TP revised to N14.21 (Previous: N13.74) 

Following weaker than expected loan growth thus far this year (down 6% vs. analyst's 2% growth expectation for H1’18), analysts cut their FY’18 growth forecast to flat (Previous: 4%). However, analysts revise their yield on asset estimate higher to reflect the stronger than expected performance so far and their higher yield expectation for the rest of the year. Consequently, their Interest Income forecast is raised to N375 billion (Previous: N359 billion). Similarly, analysts revise their Interest Expense estimate higher to N152 billion (Previous: N138 billion). Adjusting for the better than expected Q2’18 performance, analysts raise their Non-Interest Income estimate to N113 billion. Analysts note that whilst loan loss provisioning came in much lower y/y, the expense line rose q/q, missing their H1’18 estimate. 

Hence, analysts revise their forecast for the year higher to N13.6 billion. Analyst's Operating Expense estimate is also raised to N200 billion (Previous: N196 billion) – translating to a Cost to Income ratio of 59%. Overall, analysts forecast a PAT of N93.3 billion for FY’18 – translating to an EPS of N2.73 and an RoE of 17.8%. With analyst's dividend payout ratio estimate of 33%, analysts forecast a dividend per share of N0.90 for FY’18 (Final: N0.70). UBA continues to trade at a discount to peers – priced at an FY’18 P/E and P/B of 3.0x and 0.5x vs. tier I averages of 4.1x and 0.9x respectively. 

Business Description

UBA is the third largest bank in Nigeria with a vision to building strong banking businesses across the African continent. The bank offers a wide range of corporate, investment, business and personal banking products and solutions across 700 branches in 19 African countries with presence in New York, London and Paris. 

Reporting for EasyKobo on Monday , 03 August 2018 in Lagos, Nigeria

Source: Olalekan Olabode from Vetiva Capital Management Limited