UBA Q3 '20 Results Review: Reiterating Outperform Rating on Solid Q3 Results


Wednesday, December 09, 2020 / 12:20 PM / By FBNQuest Research / Header Image Credit: UBA

Proshare Nigeria Pvt. Ltd.


Material increase to our price target due to cut to risk-free rate

UBA's management has not provided ROAE guidance for FY '20. However, following its Q3 '20 results which surprised positively relative to our forecasts, we have revised our '20f ROAE forecast to 17.8% from 16.5% previously. Our new ROAE forecast is just shy of the lower end of management's 18-20% guidance for prior years. Relative to our forecasts, PAT beat by 18% because of positive surprises in funding income and loan loss provisions. 


As such, we have increased our '20-21f funding income forecasts by c.10% on average. We have also cut our '20f forecast for loan loss provisions by -4.5%. These revisions underpin the 6% average increase to our '20-21f EPS forecasts. Our new price target of N17.4 is c.48% higher because we have cut the risk-free rate driving our DDM valuation by 650bps to 6% to reflect the sharp compression in government bond yields. Thanks to an 18% q/q decline in opex, UBA's cost-to-income ratio improved to 62.4% in Q3 from 71.5% in Q2.


Despite a 9% q/q expansion in its loan book, UBA's NPL ratio deteriorated to 5.2% from 4.1% in the prior quarter. At current levels, UBA shares trade on a '20f P/B multiple of 0.4x for 12.9% ROAE in '21f. These compare with the 0.7x multiple for 14.9% ROAE that the sector Is trading on. Our new price target implies a potential upside of 111.1% from current levels. In addition to a 13.2% dividend yield, we estimate a one-year total return of 124.2%. Consequently, we keep our Outperform rating on the stock.

Proshare Nigeria Pvt. Ltd.


Q3 PAT up 42% y/y, driven by y/y growth in funding income and a decline in income tax

UBA's pre-provision profits expanded by 17% y/y on the back of funding income growth of 37% y/y. The y/y growth in funding income was underpinned by loan growth of 9% q/q and a moderation in interest expense. The y/y expansion in pre-provision profits overshadowed a 16% y/y rise in opex and was the major driver behind PBT growth of 19% y/y. Further down the P&L, PAT growth accelerated by 42% y/y, driven by a lower effective tax rate of 1.6% vs. 11.0% in Q3 '19.


Sequentially, PBT advanced by 36% q/q on the back of funding income growth of 24% q/q and a 29% q/q decline in loan loss provisions. In contrast, PAT declined by  50% q/q because of a negative result of -NGN6.3bn in other comprehensive income vs. +NGN35.1bn in Q2 '20.


Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


Related News

  1. UBA Does It Again as Six of Its African Subsidiaries Win Bank of the Year at The Bankers Awards
  2. UBA Declares N77bn PAT in Q3 2020 Results, (SP:N8.45k)
  3. Banks in H1 2020: Deconstructing Banks' H1 2020 Individual Performances - UBA
  4. Fitch Revises UBA Senegal's Outlook to Stable; Affirms at 'B-'
  5. UBA Q2 2020 Results Review: Upside Potential Still Sizable; Retaining OP Rating
  6. UBA Declares N44.43bn PAT in H1 2020 Audited Results; Proposes 17k Interim Dividend, (SP:N6.55k)
  7. UBA Notifies of Delay in Filing of 2020 Audited Half Year Results
  8. UBA Board Approves H1 2020 Results and Payment of Interim Dividend; Awaits Regulatory Approval
  9. United Bank for Africa Provides 200 Million for Nigeria s Petroleum Industry...
  10. UBA Reacts to False Media Reports Alleging of N41bn Fraud Involving NITEL in Liq...
  11. Elumelu Advocates Collaborations to Boost Africa s Fortunes The Next Key Invest...
  12. UBA Notifies of Dealing in 3m Volume of Shares By Ayoku Liadi...
  13. UBA Notifies of Dealing in 2.2m Volume of Shares By Tony O. Elumelu, CON Heirs Holdings Ltd
  14. UBA Notifies of Dealing in 6.98m Volume of Shares By Tony O. Elumelu, CON Heirs Holdings Ltd
  15. UBA Notifies of Dealing in 62.6m Volume of Shares By Tony O. Elumelu, CON Heirs Holdings Ltd
  16. Moody's Announces Completion of a Periodic Review of Ratings of UBA Plc
  17. UBA Group Announces Appointment of Deputy Managing Directors for Nigeria and Africa
  18. UBA Notifies of Emergency Board Meeting
  19. UBA Hosts Airtel CEO in Quarterly Business Series, Calls for Registration of Business, SMEs Owners
  20. UBA Q4 2019 and Q1 2020 Results Review: Sizable Upside Potential Despite Cut to Price Target

Proshare Nigeria Pvt. Ltd.

Related News