Proshare - Facebook Proshare - Twitter Proshare - Google+ Proshare - Linked In Proshare - RSS Feed

UBA Plc - Strong Earnings Run Rate Despite Marginal Miss

Proshare

Tuesday, October 17, 2017 9:19AM/ Vetiva Research 


·        
Gross Earnings up 26% y/y – 7% ahead of our estimate

·        
Strong FX trading income masks high costs, amidst improving FX liquidity

·         We maintain our 8% loan growth forecast, Ytd 6%

·        
Target price revised marginally lower to N9.32 (Previous: N9.74)

 

Strong y/y performance misses estimate slightly

UBA maintained the strong earnings run rate in 9M’17 with top and bottom line rising 26% and 23% y/y respectively. Whilst Gross Earnings came in 7% better than our estimate at 334 billion, PAT (60.9 billion) marginally lagged our 63.6 billion estimate – largely due to OPEX and funding cost pressure. According to management, the bank continues to benefit from the strategic diversification of its businesses with Non-Nigerian operations accounting for a third of revenue and c.40% of PAT in Q3’17. Amidst the strong interest rate environment and better pricing on loan and treasury portfolio, Interest Income rose 30% y/y (up 6% q/q) – 4% ahead of our estimate.

 

Consequently, margins remained strong with Net Interest Margin stable at 7.3% despite a 10bps uptick in cost of funds with Interest Expense rising to 86 billion (9M’17: 71 billion) - largely due to higher foreign borrowings. Thus, Net Interest Income rose 36% y/y to 152 billion – much in line with our 151 billion estimate. Notably, whilst fees and commission remained flat y/y, earnings was supported by the strong 82% y/y growth in FX trading income following improved liquidity since the introduction of the I & E FX window.

 

UBA’s NPL ratio remained contained at 4.2% with loan loss provision coming in at 12.9 billion – better than our 14.8 billion estimate albeit higher than the 9.1 billion recorded in the prior year. This translated to a Cost of Risk of 1.1% (Vetiva FY’17E: 1.3%). However, Operating Expense (up 26%) came in 4% higher than our estimate - a trend management had earlier attributed to higher inflation, currency devaluation, and higher personnel costs. With this, PBT registered 33% up y/y to 78.3 billion vs. our 79.8 billion estimate. Overall, PAT rose 23% y/y to 60.9 billion, with annualized run-rate on-track to beat FY’16 record.

 

TP revised to N9.32 (Previous: N9.74)

We have revised our estimates marginally across most line items to reflect the deviations highlighted above. Given the current credit growth run rate (Ytd: 6%), we maintain our 8% loan growth forecast for FY’17 (management guidance: 10%). However, we raise our Interest Income forecast to 312 billion (Previous: 307 billion) to reflect the impact of loan pricing. Also, we cautiously raise our Non-Interest Income estimate to 112 billion (Previous: 110 billion) following the modest outperformance in 9M’17 and the stronger than expected income from FX trading.

 

Amidst stable FX environment and relatively stronger oil prices, we are more positive about NPL formation in the last quarter and cut our loan loss provision to 17.3 billion (Previous: 19.8 billion). That said, we expect Interest and Operating Expenses to be the key pressure points in Q4’17 as inflation remains sticky and interest rate environment elevated. Consequently, we raise our estimates higher across both line items.

 

Overall, we estimate a record high PAT of 81 billion (Previous: 85 billion) for FY’17 – translating to an EPS of 2.24. UBA continues to trade at a discount to peers – priced at an FY’17 P/E and P/B of 4.1x and 0.7x vs. tier I averages of 5.6x and 1.1x respectively.

Proshare Nigeria Pvt. Ltd.

 

 Related News

1.       UBA Reports Q3 2017 Results; OPEX Grew 25% YoY

2.      UBA Declares N60.92bn PAT in Q3 2017 Results,(SP:N9.23k)

3.      Banking Sector Q3'17 Earnings Outlook

4.      UBA Kicks Off 4th Annual Essay Competition

5.      UBA Disrupts the Market, Delights Customers with Callback Technology

6.       UBA Plc H1 2017 Conference Call & Earnings Presentation - The Key Takeaways

7.       UBA Plc Q2 2017 Results: Stringent Cost Management and Gains from FX Boost PBT

8.      UBA Plc H1-17 Results: Impressive Performance Despite OPEX Pressure

9.      United Bank for Africa Plc H1'17 - Earnings Beat as Bank Maintains Strong Earlier Run Rate

10.   UBA Reports Q2 2017 Results - OPEX Increased by 20% YoY

11.   Nigeria-Based United Bank for Africa PLC Proposed Senior Unsecured Notes Assigned 'B' Rating

12.   UBA to Launch Up To USD500 Million Senior Unsecured Medium Term Debt Notes

13.   Nigeria-Based United Bank For Africa PLC Assigned 'B and B' Ratings; Outlook Stable

14.   S&P assigns ‘B/B’ ratings and stable outlook on UBA Plc

15.   United Bank for Africa Plc Q1 2017 Results Underpin Outperform Rating

16.   UBA Plc – PBT and PAT Advanced by 41% and 62% Respectively in Q1 2017

UBA Declares N23.89bn PAT in Q1 2017 Results,(SP:N5.50k)
READ MORE:
Related News