Thursday, September 03, 2015 4:15 PM / FBN Capital Research
Event: UBA reports Q2 2015 results
Implications: Consensus full year earnings forecasts likely to be revised up
Positives: Strong double-digit y/y growth in PBT and PAT
Negatives: Faster-than-expected opex growth of 25% y/y (vs 4% y/y in Q1)
This afternoon the NSE published United Bank for Africa’s (UBA) Q2 2015 results. The results were generally strong across the board. Q2 PBT and PAT of N20.7bn and N18.7bn grew 35% y/y and 70% y/y respectively. The faster growth on the PAT line was mainly down to a positive swing on the other comprehensive income line: in Q2 2014, UBA reported a loss of –N1.4bn on this line but in Q2 2015 the result was a positive N3.7bn. As to the drivers behind the 35% y/y growth in PBT, both revenue lines contributed. Funding income was up 35% y/y while non-interest income grew 17% y/y. It appears that the former was helped mainly by margin expansion as interest income grew 18% while UBA managed to keep its interest expense flat. The strong revenue growth figures more than offset the one negative point we can see in these results: a 25% y/y growth in opex. This growth in opex represents an acceleration from the 3.5% y/y growth we observed in Q1. The opex was up 14% q/q. Less significant (though it helped) was the fact that loan loss provisions were down -24% y/y (-51% q/q). The provisions were less than half of what we had forecasted. Sequentially, PBT was up 12% q/q while PAT grew 23% q/q. Again, other comprehensive income proved significant in helping PAT grow much faster. Relative to our forecasts, both PBT and PAT were well ahead: PBT beat by almost 30% while PAT was ahead by more than 40%.
The bank announced an interim dividend of 20 kobo. The yield works out as an attractive 6%. The interim dividend is a first for UBA and was not expected (until recently when it was confirmed that UBA was auditing its results). Our reaction to the dividend is mixed. While clearly attractive (especially given that our full year dividend forecast was 14 kobo), we would have preferred a much lower payout in order for UBA to preserve its capital better. Recall that the bank only recently concluded a rights issue which raised N11.5bn. To put this into context, the interim dividend equates to a sum of N7.3bn.
Looking away from the dividend, we believe the underlying results are strong enough, especially given that they are audited, to allow the market to breathe a sigh of relief. UBA does not have an impressive asset quality track record (looking through the last crisis) like some of its larger rivals to boast about. As such, given the deterioration on the macro front, there have been concerns that both growth and asset quality will weigh on the bank’s results. Consensus estimates for full year 2015 reflect this very clearly: compared with the N39bn that the bank recorded for H1 PBT, consensus’ full year PBT estimate of N58bn looks extremely conservative to us. To our minds, we felt the guidance the bank had given was neither outlandish nor outrageous. On the back of these results, we would expect consensus estimates to be revised up. We believe these concerns about H1 earnings contributed to the sell-off in UBA shares over the past few months. At the start of this week the shares were down -42% in three months compared with -28% for the banking sector and -16% for the ASI. We expect to see a recovery on the back of these results. We rate UBA shares Outperform. Our estimates are under review.
UBA Q2 2015 results vs. FBN Capital estimates