EUR 53.02 For Business Accounts Only

UBA PLC 9M'16 - Impressive earnings growth persists

Following the modest slowdown in topline run rate in Q2’16, UBA reported a strong Q3 performance with the quarter accounting for c.38% of 9 months top and bottom line apiece. Whilst Non-Interest Income lagged our ₦72.9 billion forecast following a 46% q/q moderation in Q3 (recall that the income line spiked in Q2 on the back of FX translation gains), Interest Income came in stronger within the quarter, up 44% q/q and 13% ahead of our estimate as the bloated loan portfolio begins to bear fruits amidst a relatively higher interest rate environment. Consequently, Gross Earnings rose 8% y/y, 13% and 4% ahead of Vetiva and Consensus estimates respectively. Although Interest Expense moderated marginally y/y, the expense line came in 10% ahead of estimate as the impact of the tight monetary environment took its toll in Q3. Notwithstanding the heightened credit risk environment, UBA maintained its industry leading asset quality with an NPL ratio of 2.5%. Although loan loss expense rose to N9.1 billion (9M’15: ₦3.7 billion), the provision line still came in better than our ₦10.9 billion forecast – translating to 0.9% CoR. Despite operating cost pressure, PBT rose 7% y/y to ₦61.6 billion, beating our N56.7 billion estimate. Overall, with an effective tax rate of 15%, PAT rose 8% y/y to ₦52.3 billion vs. Vetiva estimate of ₦47.6 billion and Consensus estimate of ₦45.2 billion.

Resonating the c.55% ytd naira devaluation, UBA continues to report strong balance sheet growth. With the impact of the bloated loan portfolio (Ytd: 49%) already reflecting in top line performance, we revise our loan growth forecast to 50% (Previously: 25%) and expect to see stronger Gross Earnings growth in Q4’16. We however revise our interest cost and operating expense higher to reflect current “high-cost” operating environment. Whilst we maintain our positive view on the bank’s asset quality and capital buffer (CAR: 17.6%), we expect increasing provisions to keep a lid on performance. UBA remains one of our preferred names in the sector trading at an FY’16 P/E and P/B of 2.5x and 0.4x respectively.