Friday, August 31, 2018 12:04 PM / CardinalStone Research
United Bank for Africa Plc (UBA) H1’18 results – Gross earnings rose by 13.7% YoY to
N244.8 billion, slightly ahead of our estimate of N234.6 billion (+4.3% deviation). Similarly, after tax earnings improved, albeit moderately, by 3.4% YoY to N43.8 billion, a tad below our N46.0 billion projection (-4.9% deviation). On a quarterly basis, UBA’s gross and before tax earnings impressed by 14.1% QoQ ( N130.5 billion) and 18.9% QoQ ( N31.6 billion) respectively. The lower earnings after tax recorded in Q2’18 (-15.5% QoQ) was notably the result of a much higher effective tax rate during the quarter (Q1’18 – 10.5%; Q2’18 – 36.4%).
UBA declared an interim dividend of
N0.20 per share, which translates to a dividend yield of 2.5% based on its last close price.
· Interest income improved by 7.3% QoQ to
N97.0 billion in Q2’18, buoyed by growth in interest income from investment securities (+25.5% QoQ) which more than offset a 2.8% QoQ decline in interest income from loans and advances. This positively impacted net interest income (+7.4% QoQ), notwithstanding a 7.2% QoQ increase in interest expenses.
· Despite a
N4.2 billion FX revaluation loss (vs. gain of N1.8 billion in Q1’18) and a 90.1% QoQ decline in FX trading income, UBA recorded improved growth in non-interest income (+39.6% QoQ) in Q2’18, thanks to 17.4% QoQ increase in net fees and commission income and a N15.5 billion fair value gain on derivatives (vs. loss of N2.8 billion in Q1’18).
· Impairment charges leapt by 263.0% QoQ during the quarter to
N5.3 billion. On a positive note, however, cumulative impairment charges for H1’18 remains lower (-28.7% YoY) relative to H1’17. Overall, the bank’s cost of risk printed at 0.8%. In addition, operating expenses increased by 8.8% QoQ in Q2’18. However, operational efficiency improved as cost-to-income ratio declined by 480bps QoQ to 59.3%.
· Net loans to customers declined by 6.5% to
N1.5 trillion, while deposits from customers and total assets improved by 6.1% and 4.9% to N2.9 trillion and N4.3 trillion respectively.
We like UBA’s H1’18 result which reflects a stronger Q2 performance compared to Q1’18. We attribute this improvement in interest and non-interest income during the quarter. Over H1’18, however, we note the 4.8% YoY decline in non-interest income, impacted by a 67.7% YoY decline in FX trading income. While we have seen improvement across the bank’s trade transactions and electronic banking businesses, we believe that improved management of the bank’s treasury transactions can unlock further value in H2’18. Based on our last review, our target price for the counter is
7. UBA Emerges best institution in Digital Banking across Africa