Monday, March 27, 2017/3:50 PM /FBNQuest Research
Event: United Bank for Africa (UBA) reports Q4 2016 results
Implications: Upgrades to consensus 2017 forecasts likely
Positives: Strong y/y growth in revenue and earnings; 10% implied yield on proposed final dividend of 55 kobo
Negatives: Limited to y/y increases in loan loss provisions
Late on Friday of last week, UBA reported very strong Q4 2016 results with both PBT and PAT growing triple digits y/y; 162% for PBT and 114% for PAT.
Both revenue lines contributed to the strong results: net interest income of N53bn grew 69% y/y while non-interest income of N34bn was up 164% y/y to leave profit before provisions of N88b up 97% y/y.
Although loan loss provisions were up significantly y/y (largely due to base effects) and opex also grew by 25% y/y, the impact of the strong revenue results was dominant, leading to the strong earnings. Sequentially, while PBT grew healthily, by 37% q/q, PAT showed a decline of -18% q/q because UBA had booked a significant other comprehensive income in Q3 compared with the loss of –N3.0bn in Q4.
Returning to the PBT line, again the revenues were strong enough to more than offset the q/q increase in provisions; to a lesser extent, an -8% q/q reduction in opex also helped.
When compared with our forecasts, the results exceeded our expectations significantly, and across the board. Only the loan loss provisions line showed a negative surprise: the provisions were around 3 times our forecast.
But given how strong the underlying results were, this negative surprise on the provisions line pales in significance. The bank proposed a final dividend of 55 kobo, a 38% increase y/y.
The implied yield is 10%. By all accounts, these are UBA’s strongest results ever. Even if we ignore the OCI gains, the full year results show double-digit y/y growth for both revenue lines and the PBT.
The full year ROAE works out as 34%. Excluding the OCI, it is close to 19%. After gaining 33% in 2016 (ASI: -6.2%), the shares have added a further 20% ytd ( ASI: -5.3%).
To our minds, the concerns that the market has had about UBA’s turnaround from the 2008/09 crisis are clearly dissipating. On the back of this set of results, we would expect consensus estimates to move higher and for the shares to rally further. We rate the shares Outperform. Our estimates are under review.
UBA Q4 2016 results: actual vs. FBNQuest Research estimates (N millions)