Report
EUR 4.00 For Business Accounts Only

UBA Plc 9M 2020 - Earnings advance on higher interest income

  • UBA released its Q3 2020 results showing growth in PBT and PAT by 36.2% QoQ and 128.2% QoQ respectively. The faster expansion in PAT reflected a lower effective tax over the period (-94.6% QoQ). Precisely, higher interest income (+15.6% QoQ), lower operating expenses (-17.6% QoQ) as well as a decline in loan loss provisioning (-29% QoQ) anchored the improvements in quarterly numbers, outweighing the sharp fall in NIR (-37.8% QoQ). On interest income, the bank recorded a 25% increase in earnings on investment securities as well as higher interest income on loans to customers (+6.1% QoQ). Akin to other banks, the recognition of AMCON levy in H1 2020 in line with the requirements of IFRIC 21 levies, drove operating expenses southward. Meanwhile, the steep fall in NIR reflects a decline in net fee income (-11% QoQ) and a lower trading income (-60% QoQ) – a fallout of FX revaluation losses (-102% QoQ) and lower gain on FX derivatives (-82% QoQ).
  • Cumulatively, the company reported a decline in PBT and PAT by 8% YoY and 5.5% YoY respectively over 9M 2020. Compared with our estimates, PBT and PAT represented 82% and 92% of our FY 2020 estimates. Precisely, interest expense came in below our estimate (67% of our FY 2020 estimate) while Non-interest revenue was higher than expected (83% of our estimate). The key drivers of the lower bottom line were higher operating expenses and loan loss provisioning.
  • To start with, operating expenses grew by 19.2% YoY reflecting higher AMCON levy (+12% YoY), premises maintenance costs (+20% YoY), contract services (+52% YoY) and personnel cost (+21% YoY). Consequently, cost to income ratio expanded by 482bps YoY to 65.6%. Meanwhile, loan loss provisioning expanded by 72.2% YoY, translating to a higher cost of risk of 0.6% (+18 bps YoY) over 9M 2020. 
  • Over 9M 2020, net interest margin remained pressured, declining 69bps YoY to 3.8%, owing to a faster decline in asset yield (-193bps YoY) compared to cost of funds (-151bps YoY). Net interest income rose by 17.1% YoY on the back of higher interest income (+6.5% YoY) and lower interest expense (-5.7% YoY). To buttress, expansion in interest income reflects higher interest earnings on loans and advances as the bank grew loans by 15.6% YTD to N2.38 trillion (+23.07% YoY). On the other hand, lower interest expense on deposits from customers (-11.4% YoY) accounted for the decline in interest expense.
  • Elsewhere, Non-interest revenue (NIR) rose marginally by 0.6% YoY as declines in net fee income (-11% YoY) muted increases across FX trading (+2% YoY), gains on derivatives (+115% YoY), as well as FX revaluation gains (+1997% YoY).
  • As stated earlier, 9M 2020 interest expense is running below our FY 2020 estimate, therefore we have made a downward adjustment to interest expense to N177 billion (previously: N194.6 billion) and a slight increase in non-interest revenue to N131.6 billion (Previously: N130.5 billion). The impact of our adjustment is an increase in PAT by 9% YoY to N96.9 billion over FY 2020 (previously -6% YoY moderation in PAT). We now have a FVE of N10.39/share (previously: N10.0/share) with an upside of 31.6%, which translates to a BUY rating on the stock based on current pricing
Provider
ARM Securities Limited
ARM Securities Limited

ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape. ​

Other Reports from ARM Securities Limited

ResearchPool Subscriptions

Get the most out of your insights

Get in touch