UNITED BANK FOR AFRICA PLC Q1'18 - Earnings beat supported by lower loan loss provision

UBA released its Q1’18 results, posting modest top and bottom line performances. Notably, Gross Earnings rose 18% y/y to ₦119 billion – 2% ahead of our ₦117 billion estimate, albeit 6% weaker than the ₦128 billion reported in Q4’17. Although Non-Interest Income came in 24% lower than we had expected and 30% weaker q/q, the strong Gross Earnings growth was supported by an 18% y/y rise in Interest Income to ₦90.3 billion – 5% better than our estimate and 3% higher q/q. However, despite the relatively lower interest rate environment and amid a modest 4% q/q rise in Customer Deposits, Interest Expense rose 14% q/q to ₦36.8 billion, outpacing our ₦30.4 billion estimate. With this, Net Interest Income rose 4% y/y to ₦53.6 billion - 3% lower than our ₦55.3 billion estimate. Overall, with Operating Expense coming just in line with our estimate at ₦50 billion, albeit up 13% y/y, PAT rose 6% y/y to ₦23.7 billion – 5% ahead of our ₦22.6 billion estimate.                                               

We revise our estimates across a few line items to account for the deviations in Q1’18 numbers. Particularly, we cut our loan growth forecast to a modest 4% y/y growth for FY’18 (Previous: 10%; Q1’18: -2%). Supported by a stronger than expected yield on assets, we raise our Interest Income forecast higher to ₦359 billion (Previous: ₦337 billion). Also, in line with the weaker Q1’18 run rate, we cut our Non-Interest Income estimate lower to ₦106 billion (Previous: ₦125 billion). Consequently, our top line estimate is revised to ₦465 billion (Previous: ₦470 billion). More importantly, we cut our loan loss provision estimate to ₦11.8 billion (Previous: ₦20.4 billion) due to our more optimistic asset quality outlook following the ₦34 billion one-time charge taken after the implementation of IFRS 9. Overall, we forecast a PAT of ₦94.0 billion for FY’18 – translating to an EPS of ₦2.75 and an RoE of 17.3%.