UBA PLC 9M'17 - Strong earnings run rate despite marginal miss

Strong earnings run rate despite marginal miss

UBA maintained the strong earnings run rate in 9M’17 with top and bottom line rising 26% and 23% y/y respectively. Whilst Gross Earnings came in 7% better than our estimate at ₦334 billion, PAT (₦60.9 billion) marginally lagged our ₦63.6 billion estimate – largely due to OPEX and funding cost pressure. Amidst the strong interest rate environment and better pricing on loan and treasury portfolio, Interest Income rose 30% y/y (up 6% q/q) – 4% ahead of our estimate. Consequently, margins remained strong with Net Interest Margin stable at 7.3% despite a 10bps uptick in cost of funds with Interest Expense rising to ₦86 billion (9M’17: ₦71 billion) - largely due to higher foreign borrowings. 

We have revised our estimates marginally across most line items to reflect the deviations highlighted above. Given the current credit growth run rate (Ytd: 6%), we maintain our 8% loan growth forecast for FY’17 (management guidance: 10%). However, we raise our Interest Income forecast to ₦312 billion (Previous: ₦307 billion) to reflect the impact of loan pricing. Also, we cautiously raise our Non-Interest Income estimate to ₦112 billion (Previous: ₦110 billion) following the modest outperformance in 9M’17 and the stronger than expected income from FX trading. Overall, we estimate a record high PAT of ₦81 billion (Previous: ₦85 billion) for FY’17 – translating to an EPS of ₦2.24. UBA continues to trade at a discount to peers – priced at an FY’17 P/E and P/B of 4.1x and 0.7x vs. tier I averages of 5.6x and 1.1x respectively.