Stock & Analyst Updates | |
Stock & Analyst Updates | |
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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.
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