UBA - Slight Better-Than-Expected Q3 2016 Results


Wednesday, October 12, 2016 12:53pm / FBNQuest Research

Q3 results underpin Outperform rating and price target
UBA’s Q3 2016 results were decent. Earnings grew double-digits. While PBT was ahead of our estimate by 18%, largely due to funding income, PAT missed by 13%. The latter was purely down to minorities surprising negatively. We had forecast just N543m for minorities vs a reported figure of N7.3bn.

Excluding the minorities line, PAT grew 46% y/y and beat our forecast by 11%. On the back of these results, we have made limited changes to our forecasts. Although the market will understandably continue to be concerned about asset quality risks, UBA is on course to deliver at least 10% PBT growth to N76bn for full year 2016E based on our Q4 2016E estimates which already reflect close to a q/q tripling in loan loss provisions to N6.3bn.

We forecast a full year cost of risk of 1.1% (vs guidance of 1%). Our full year 2016E PAT estimate of c.N120bn is flattered by fx-related gains (mainly translation gains). Year to date, UBA shares are up 23% (ASI: -2%); we continue to expect them to re-rate to a 2017E P/B of around 0.5x vs c.0.3x currently. We reiterate our Outperform rating.

Healthy y/y growth in earnings
Although UBA’s Q3 2016 PAT was larger than PBT at N25bn, thanks to continued strong results (N12.7bn) on the other comprehensive income line (translation gains on foreign subsidiaries and mark to market gains on available for sale instruments), the growth was similar to that on the PBT line at 16% y/y.

The earnings growth was supported by healthy performances in both funding and non-interest income, with y/y growth rates of 27% and 13% respectively. Roughly half of the bank’s 19% q/q loan growth was due to naira devaluation, boosting funding income. The growth rates in both funding and non-interest income more than offset a 55% y/y in loan loss provisions and a 25% y/y rise in operating expenses to N43.5bn.

The former was flattered by base effects. Sequentially, opex rose 18% due to inflationary and fx-related pressures (having surprised negatively with a 15% q/q growth in Q2), and largely explains why PBT was down -4.1% q/q. Funding income (+61% q/q) was offset by a marked pull back in non-interest income (after an extremely strong Q2) to leave profit before provisions up only 3% q/q.

Loan loss provisions also fell sharply q/q, by -61% (again flattered by base effects) but the impact of the opex growth was significant. PAT fell -65% q/q because other comprehensive income was weaker q/q and minorities grew strongly.

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