UBA PLC FY'16 - Earnings beat estimates on strong Q4 performance

UBA maintained its strong earlier earnings run rate, posting an impressive top and bottom line performance – both ahead of Vetiva and Consensus estimates. Although Interest Income rose 15% y/y (4% better than our estimate), Non-Interest Income performance was the main earnings driver – up 38% y/y and 19% ahead of our estimate. The income line was spurred by a strong 80% q/q growth in Q4’16. We highlight that the Q4’16 performance was largely boosted by the Derivative and Foreign Currency revaluation gains of ₦10.6 billion and ₦8.6 billion respectively. Furthermore, with Interest Expense coming just in line with our ₦27.9 billion estimate for Q4’16, Net-Interest Income rose 11% q/q – ensuring the income line was 6% better than our full year estimate.

Following the significant currency devaluation observed in 2016, UBA reported a strong balance sheet growth (Loan Book: 45% and Total Assets: 27%). However, we anticipate a more contained growth for FY’17 and forecast a modest 8% real credit growth. With our expectation of a relatively more stable currency environment, we anticipate a moderation in Non-Interest Income. Although we expect the risk environment to remain challenging in FY’17, we estimate a loan loss expense of ₦19.8 billion – translating to a 1.3% CoR. UBA remains one of our preferred names in the sector – priced at an FY’17 P/E and P/B of 2.6x and 0.4x respectively.