UBA PLC 9M'18 - Slower quarter pegs earnings to a flat y/y performance

Slower quarter pegs earnings to a flat y/y performance                                                                               

UBA released its 9M’18 results, reporting a modest 12% y/y growth in Gross Earnings to ₦375 billion vs. our ₦366 billion estimate. Whilst the top line performance came in 2% ahead of our estimate, bottom line missed our forecast by 8% following a relatively weaker Q3’18 performance. Particularly, Interest and Non-Interest Incomes came in weaker in Q3’18 vs. previous quarter. This is surprising given the modest 3% q/q loan growth recorded, coupled with the stronger yield environment within the quarter – in the Nigerian environment. Also, with Deposits up 10% q/q (up 16% ytd), Interest Expense was up 7% q/q and 38% y/y for the 9M period to ₦118 billion – ahead of our ₦114 billion estimate. Although Operating Expense rose mildly by 2% y/y to ₦149 billion, the expense line came in better than our ₦154 billion estimate. Overall, amidst a marginally lower than expected effective tax rate of 22% vs. our 24% estimate, PAT came in flat y/y at ₦61.7 billion (Vetiva: ₦66.9 billion) albeit down 11% q/q to ₦17.9 billion vs. Q2’18: ₦20.0 billion.                                                                               

Following the misses across a few line items, we revise our earnings estimates accordingly. Whilst we maintain our flat y/y loan growth expectation for FY’18, we revise our yield on assets slightly lower to reflect the miss within the last quarter. Consequently, we cut our Interest Income estimate lower to ₦359 billion (Previous: ₦375 billion). We are impressed by the strong 10% q/q deposit growth in Q3’18 and expect this to support credit growth in the last quarter of the year. With this and amidst the expected uptick in interest rate environment, we revise our Interest Expense estimate higher to ₦159 billion (Previous: ₦152 billion). With our dividend payout ratio estimate of 33%, we forecast a dividend per share of ₦0.80 for FY’18 (Final: ₦0.60). UBA continues to trade at a discount to peers – priced at an FY’18 P/E and P/B of 3.0x and 0.5x vs. tier I averages of 4.1x and 0.9x respectively.