UBA PLC FY'17 - Persistent earnings track estimates, PAT up 9% y/y

Persistent earnings track estimates, PAT up 9% y/y
UBA released its FY’17 results, posting impressive top and bottom line performance – driven by strong balance sheet growth. With Interest and Non-Interest Income coming in 23% and 13% higher y/y (4% and 6% better than our estimates) respectively, Gross Earnings rose 20% y/y to ₦462 billion vs. our ₦424 billion estimate. However, in line with the trend we have observed across the industry, UBA reported significantly higher loan loss provision of ₦20 billion in Q4’17 (Q3’17: ₦3.5 billion) – bringing FY’17 provisioning to ₦32.9 billion and translating to a cost of risk of 2.1%. We understand that the bank has made c.38% provision on its ₦40 billion exposure to the telecoms giant – 9mobile. PAT came in ₦78.6 billion - marginally below our estimate of ₦79.8 billion. Overall, the Board of Directors declared final dividend of ₦0.65 per share (interim: ₦0.20), translating to a dividend payout ratio of 37% and a dividend yield of 7%.

We highlight that earnings came largely in line with our estimates. As such, we maintain our forecasts across most line items. Although we forecast an above average loan growth of 10% for UBA in 2018, we expect moderating interest rate to cap its impact on Interest Income and estimate a mild 2% y/y growth in FY’18. With asset quality deteriorating faster than expected in FY’17, we are cautious going into FY’18 and forecast a loan loss provision of ₦26.3 billion – translating to a 1.5% cost of risk. Also, we estimate an 8% y/y rise in Operating Expense (₦203 billion), keeping efficiency stable with a Cost to Income ratio of 58%. Overall, we forecast a PAT of ₦90.4 billion for FY’18 – translating to an EPS of ₦2.64.