Cancellation of UBA Staff Share Investment Scheme - Upward Review to Consensus TP and EPS


Wednesday, July 19, 2017  09.02 AM / Cordros Capital

United Bank for Africa Plc (UBA) published a press release on the NSE this afternoon, stating that a process has been initiated to cancel the shares in its Staff Share Investment Trust Scheme (SSIT) with the crossing of 2,080,104,955 shares to the Bank. The shares were created as a share-based compensation scheme and represent 5.73% of the total shares outstanding of the Group. This share transfer is part of the process of executing the special resolution passed at the annual general meeting held in April 2016.

We understand that the transfer of the shares from the SSIT custodian to the Bank was a non-cash transaction, and thus, should have no impact on cash flow, as the shares are the portion yet to be allocated to employees. Also, since extant laws (with exceptions not applicable in this case) in Nigeria do not permit a company to hold its own shares in treasury, the transfer of the shares initiates a process for the final cancellation of same.

Consequent upon the cancellation (a process initiated with the publication on NSE of the intent, according to CAMA), we would expect the intrinsic value and hence, target price of UBA's stock to adjust in line with the reduced number of shares outstanding (from 36.28 billion to 34.19 billion). We currently have a HOLD rating on the stock, on N8.91 TP.

Assuming the company completes the process of the cancellation and does not recourse to the provisions of Section 161 (a) - wherein a company is allowed to purchase its own shares out of profit which would otherwise be available for dividend or the proceeds of a fresh issue of shares made for the purpose of the purchase -, we would expect an upward review to consensus' target price and EPS.

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