United Bank for Africa Plc Q1 2017 Results Underpin Outperform Rating


Tuesday, May 02, 2017/ 9:59 AM / FBNQuest Research

11% / 10% increase to our 2017-18E EPS / price target

UBA has started the year strongly. The Q1 2017 PBT and PAT grew very strongly y/y and came in ahead of our expectations.

As such we have increased our 2017-18E earnings forecasts by an average of 11% and our price target by c.10% to N7.2.

Our earnings upgrades stem mainly from slight upward revisions to our income forecasts. Our forecasts imply an ROAE for 2017E of 14.3%; though 180bps higher than our previous forecast, it is still some way below management’s guidance of 20%.

Even though we continue to see management’s guidance as aggressive, the gap between our forecast and guidance implies there is room for additional positive surprises over the course of the year.

Ytd, UBA shares have gained 29.3% (ASI: -4.1%) but are still trading on a current P/B multiple of just 0.45x.

Given the strong Q1 2017 results and the favourable outlook we see for the rest of the year, we continue to believe the shares are undervalued at these levels.

Our new price target implies upside potential of 23%. We reiterate our Outperform recommendation.

Strong double-digit y/y earnings growth in Q1 2017

UBA’s Q1 2017 PBT and PAT grew by double-digits: 41% y/y and 62% y/y to N25.5bn and N22.8bn respectively.

The stellar results were underpinned by a 43% y/y growth in pre-provision profits to N72.6bn. Although provision for loan losses and opex spiked by 489% y/y and 37% y/y respectively, the y/y expansion in profit before provisions was significant and completely offset the negative contribution of both lines.

In terms of the split of pre-provision profits, both revenue lines contributed to the strong results.

While funding income advanced by 55% y/y, non-interest income increased by 20% y/y.

Further down the P&L, PAT accelerated by 62% y/y, thanks to a strong positive result of N1.5bn on the other comprehensive income (OCI) vs. a loss of -N2.3bn in Q1 2016.

Sequentially, PBT declined by 12% q/q mainly because non-interest income was around 39% weaker on a q/q basis.

Funding income also declined by around 3% q/q. Despite the y/y decline in PBT, PAT grew by 12% q/q, thanks to the positive result on the OCI line.

Compared with our forecasts, PBT and PAT both beat by 14% and 10% respectively.

Positive surprises on both income lines (8% and 21% respectively) more than offset negative surprises in opex (10%) and loan loss provisions (33%).



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