United Bank for Africa : Slower quarter pegs earnings to a flat y/y performance   


• Momentum moderates as earnings slow q/q 

• PAT on track for another record year albeit 6% behind estimate 

• Strong deposit growth to support future credit growth 

• Analysts estimate a DPS of N0.80 for FY’18 

PAT misses estimates as slower Q3 pegs earnings 

19 October 2018 : UBA released its 9M’18 results, reporting a modest 12% y/y growth in Gross Earnings to N375 billion vs. analyst's N366 billion estimate. Whilst the top line performance came in 2% ahead of their estimate, bottom line missed their forecast by 8% following a relatively weaker Q3’18 performance. Particularly, Interest and Non-Interest Incomes came in weaker in Q3’18 vs. previous quarter. This is surprising given the modest 3% q/q loan growth recorded, coupled with the stronger yield environment within the quarter – in the Nigerian environment. 

Also, with Deposits up 10% q/q (up 16% ytd), Interest Expense was up 7% q/q and 38% y/y for the 9M period to N118 billion – ahead of analyst's N114 billion estimate. Consequently, Net Interest income came in flat y/y and 10% behind analyst's estimate. Furthermore, with loan loss provisions down 25% q/q, the expense line moderated 17% y/y to N10.7 billion – slightly below analyst's estimate. With this, Operating Income was marginally up y/y (2%) to N228 billion, albeit 6% weaker than analyst's N242 billion expectation. Although Operating Expense rose mildly by 2% y/y to N149 billion, the expense line came in better than analyst's N154 billion estimate. Overall, amidst a marginally lower than expected effective tax rate of 22% vs. analyst's 24% estimate, PAT came in flat y/y at N61.7 billion (Vetiva: N66.9 billion) albeit down 11% q/q to N17.9 billion vs. Q2’18: N20.0 billion. 

TP revised to N13.78 (Previous: N14.21) 

Following the misses across a few line items, analysts revise their earnings estimates accordingly. Whilst analysts maintain their flat y/y loan growth expectation for FY’18, analysts revise their yield on assets slightly lower to reflect the miss within the last quarter. Consequently, analysts cut their Interest Income estimate lower to N359 billion (Previous: N375 billion). Analysts are impressed by the strong 10% q/q deposit growth in Q3’18 and expect this to support credit growth in the last quarter of the year. With this and amidst the expected uptick in interest rate environment, analysts revise their Interest Expense estimate higher to N159 billion (Previous: N152 billion). However, with asset quality expected to remain healthy, analysts maintain their loan loss provision estimate at N13.6 billion – translating to a cost of risk of 0.8%. With this analysts estimate a PAT of N82.0 billion for FY’18. 

Analysts highlight that despite the slower quarterly performance so far this year, bottom line remains on track to beat FY’17 performance, coming in as the best annual performance on record. Overall, analyst's bottom line forecast for FY’18 translates to an EPS of N2.40 and an RoE of 15.7%. With their dividend payout ratio estimate of 33%, analysts forecast a dividend per share of N0.80 for FY’18 (Final: N0.60). 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.

Reporting for EasyKobo on Friday ,19 October 2018 in Lagos, Nigeria

Source: Vetiva Capital Management Limited

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