UBA PLC Q1'17 - Earnings beat estimates, PAT up 32% y/y

UBA released its Q1’17 earnings, reporting strong double digit top and bottom line growth – both coming in ahead of our estimates. In line with the trend observed across most banking names, Gross Earnings rose by an impressive 37% y/y to ₦101 billion (Vetiva estimate: ₦94 billion) – supported by a 43% y/y rise in Interest Income to ₦77 billion (10% better than our estimate). However, despite coming in 20% higher y/y, Non-Interest Income moderated 39% q/q – 14% behind our estimate. Also, with Interest Expense down 10% q/q and 4% better than our expectation, Net Interest Income came in strong, up 55% y/y and 19% better than our estimate. Furthermore, moderating from the highs of Q4’16, UBA reported a contained loan loss provision of ₦3.1 billion – better than our ₦4.0 billion estimate and the reported provision of ₦18.9 billion in Q4’16. Notably, we highlight significant pressure on Operating Expense, up 37% y/y and 10% q/q to ₦44 billion – ahead of our ₦39 billion estimate. However, despite the higher Operating Expense, the impressive earnings run rate was maintained as PBT rose 41% y/y and 3% ahead of our estimate. Overall, with an effective tax rate of 12% vs. our 20% expectation, PAT rose 32% y/y to ₦22.4 billion – 13% ahead of Vetiva estimate of ₦19.8 billion.

We revise our earnings estimate across a few line items to reflect the deviation from our estimates. Whilst we raise our Interest Income higher to reflect stronger Yield on Assets (YoA) to ₦299 billion (Previous: ₦278 billion), we cut our Non-Interest Income to ₦87 billion (Previous: ₦97 billion), reflecting the slower than expected Q1’17 run rate. Consequently, we raise our Gross Earnings forecast to ₦385 billion (Previous: ₦375 billion). However, we maintain our 8% loan growth forecast for FY’17. Whilst we remain cautious and maintain our loan loss provision forecast of ₦20 billion (translating to a CoR of 1.3%), we revise our Operating Expense estimate to ₦167 billion (Previous: ₦156 billion). Overall, we estimate a ₦77 billion PAT for FY’17 – translating to an EPS of ₦2.12. UBA remains one of our preferred names in the sector – priced at an FY’17 P/E and P/B of 2.6x and 0.2x respectively.