Tuesday, March 15, 2016 05:34PM /Vetiva Research
· PAT slightly above Consensus, below Vetiva estimate
· Efficiency Improves further, CIR in line with our estimate
· Board of Directors propose final dividend of N0.40 (cumulative: N0.60)
· TP revised to N6.65 (Previous: N5.16)
Weak Non-Interest Income pegs Q4 performance
UBA reported relatively strong FY’15 earnings, recording 25% y/y growth in PAT with EPS of N1.64 slightly above consensus (N1.62) but below Vetiva estimate (N1.67). Whilst Interest Income rose 19% y/y (2% ahead of our estimate), Non-Interest Income was down 13% y/y (21% behind our forecast), pressured by a 63% q/q decline in Q4’15.
With a modest 3% q/q rise in Q4’15, Interest Expense was constrained to a 6% rise y/y – 3% better than our estimate. Given the asset quality concerns across the sector, we had anticipated an uptick in loan loss provision in the last quarter of the year. However, against our expectation, UBA wrote back N342 million in provision in Q4’15 – putting FY’15 loan loss provision at N5.1 billion (51% behind our N10.4 billion estimate).
Furthermore, Operating Expense was constrained to a 5% y/y rise (1% better than our estimate). Although PBT rose 22% y/y (to N68.5 billion), it was down 39% q/q in Q4’15 and 7% behind our forecast. With an effective tax rate of 13% vs. our forecast of 17% and prior year’s rate of 15%, PAT rose 25% y/y.
The earnings weakness of Q4’15 reflects a tougher macro backdrop. The Board of Directors has proposed a final dividend of N0.40 of per share (cumulative: N0.60) – translating to a dividend yield of 16%.
TP revised to N6.65 (Previous: N5.16)
We have updated our model and revised our forecast to reflect the deviation from our expectation. With a modest 6% loan growth forecast for FY’16 amidst the lower interest rate environment, we estimate a 6% decline in Gross Earnings. In line with the trend observed in Q4’15, we expect Non-Interest Income to remain constrained.
Whilst we highlight that UBA has one of the best asset quality within our coverage, we remain concerned about possible uptick in NPL and CoR in FY’16. Consequently, we forecast a significant 92% rise in provision in FY’16 – translating to a 0.9% CoR (FY’15: 0.5%).
That said, we expect the moderation in Interest and Operating Expense to support bottom line marginally in FY’16. UBA trades at a 2016E P/E and P/B of 2.8x and 0.4x compared to Tier I averages of 3.3x and 0.6x respectively.
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