EUR 53.02 For Business Accounts Only

UBA PLC H1'16 - Non-Interest Income lifts earnings

Despite a moderation in Q2 earnings run rate, UBA reported a better than expected H1’16 performance with PAT coming in 8% and 15% ahead of Vetiva and Consensus estimates respectively. Although we had anticipated a relatively constrained top line performance due to the expected impact of the tough operating environment on loan growth and Non-Interest Income, Gross Earnings surprisingly beat our estimate as impressive income from E-banking transactions spurred the top line to a 23% q/q growth (27% ahead of our forecast). As expected, asset quality remained the main pressure point (in line with industry trend) as management prudently increased the collective impairment on non-performing loans to reflect the volatile macroeconomic environment. Consequently, loan loss provision within the quarter spiked to ₦5.8 billion (Q1’16: ₦1.0 billion) albeit significantly lower than numbers reported by peers. However, contrary to previous trend, operating expense inched higher in Q2’16, up 15% q/q as higher inflation took its toll. Overall, with an effective tax rate of 19% PAT rose 2% y/y to ₦32.6 billion vs. Vetiva estimate of ₦30.3 billion and Consensus estimate of ₦27.9 billion. Amidst the 42% naira devaluation observed in June, UBA reported strong balance sheet growth with loan portfolio, deposits, and total assets up 23%, 20%, and 20% compared to the reported 19%, 9%, and 15% respectively recorded by our coverage banks. Following this, we raise our loan growth forecast to 25% (Previous: 5%). Despite our strong loan growth expectation, we cut our Interest Income estimate by 3% to a moderated ₦216 billion due to our expectation of a lower average yield on portfolio – pressured by the impact of lower yield on FCY assets. However, we raise our Non-Interest Income and loan loss provision estimates to reflect the trend observed in H1’16. Overall, with a modest capital buffer (CAR: 18.7%), market leading asset quality (NPL ratio: 2.4% vs. coverage bank’s average: 6.7%), and impressive profitability (FY’16E ROAE: 18.3%), UBA remains one of our preferred names in the sector. UBA trades at FY’16 P/E and P/B of 2.5x and 0.4x compared to our Tier I averages of 3.6x and 0.7x respectively.​