UBA Records Strong Q4'15 Results; Outperform rating maintained

Proshare

Friday, March 18, 2016 09:55AM /FBNQuest Research

Some pass-through to valuation on strong Q4 2015 results
UBA’s Q4 2015 results showed that the bank delivered an ROAE of over 20%. This marks the fourth consecutive year that the bank has delivered strong double-digit ROAE. ‘Disappointment’ in non-interest income, largely due to fair value adjustments on derivatives, was offset by positive surprises in net recoveries and on the opex line.

Management is bullish on loan growth for 2016 (guidance of 10-15%) and believes that asset quality issues will be kept under control, with a guidance of an NPL ratio of less than 2.5%. Given the weak macro environment, we are more conservative, with a loan growth estimate of just 5% and an NPL ratio of 4%.

Despite our conservative stance, given the extent of the positive surprise in the Q4 2015 results, we have increased our 2016 PBT forecast by 10%, and our price target by 9% to N6.1. The shares are yet to respond meaningfully to the Q4 results. From current levels, we see upside potential of 66%. We reiterate our Outperform recommendation.

Better-than-expected Q4 2015 results on provisions and opex
Although both UBA’s Q4 2015 PBT (N11.1bn) and PAT (N9.5bn) were down y/y, by -19% y/y and -37% y/y respectively, we had also been expecting the declines; the magnitude was less than our expectations, however. The main driver behind the y/y declines was the non-interest income line which saw a -74% y/y fall to N7.0bn due to marked-to-market losses.

This more than offset a strong 48% y/y growth in funding income to N35.8bn. Although operating expenses were also down -12% y/y and the provisions line actually recorded a positive net recovery figure of N342m vs –N836bn a year earlier, these were not sufficient to prevent the y/y decline in PBT. As for the PAT, although the tax charge was limited to just N9m, other comprehensive income came in at –N1.6bn, a significant swing from the positive N3.5bn that the bank had recorded in Q4 2014.

Sequentially, both PBT and PAT were down markedly, by -40% and -56% respectively. Relative to our forecasts, PBT beat by 38% while PAT was ahead by 88%. Positive surprises on the provisions line, in opex, on the tax and other comprehensive income lines more than offset lower-than-expected results in non-interest income. UBA proposed a final dividend of 40 kobo, (eq. to a yield of 11.7% at the time of the announcement).



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