UBA PLC H1'18 - Strong quarter overshadowed by higher tax rate – PAT up 3% y/y

Strong quarter overshadowed by higher tax rate – PAT up 3% y/y                                                                           

UBA released its H1’18 results, posting modest top and bottom line y/y performances. Whilst the top line performance came in 5% ahead of our estimate, bottom line missed our estimate mildly by 2% - following a higher than expected effective tax rate. As against the trend observed across a number of other banks, performance in the second quarter of the year remained strong. Particularly, Gross Earnings rose 5% q/q to ₦125 billion (H1’18: ₦245 billion) – supported by an impressive 39% q/q rise in Non-Interest Income amidst a modest 5% q/q growth in Interest Income. Also, despite a notable rise in loan loss provision within the quarter (₦5.3 billion vs. Q1’18: ₦1.5 billion), Operating Income rose 13% q/q to ₦85.6 billion – ahead of our ₦81.8 billion estimate. Although Operating Expense rose 9% q/q to ₦54.0 billion (pressured by the annual AMCON levy of ₦14.7 billion due every second quarter of the year), Q2’18 PBT still came in strong - up 19% q/q at ₦31.6 billion and beating our ₦29.5 billion estimate. However, following a significantly higher than expected effective tax rate of 37% in Q2’18 standalone vs. our 22% estimate and prior year’s 17%, PAT was down 16% q/q to ₦20.0 billion.

Following weaker than expected loan growth thus far this year (down 6% vs. our 2% growth expectation for H1’18), we cut our FY’18 growth forecast to flat (Previous: 4%). However, we revise our yield on asset estimate higher to reflect the stronger than expected performance so far and our higher yield expectation for the rest of the year. Consequently, our Interest Income forecast is raised to ₦375 billion (Previous: ₦359 billion). Similarly, we revise our Interest Expense estimate higher to ₦152 billion (Previous: ₦138 billion). Adjusting for the better than expected Q2’18 performance, we raise our Non-Interest Income estimate to ₦113 billion. We note that whilst loan loss provisioning came in much lower y/y, the expense line rose q/q, missing our H1’18 estimate.                                                                              

UBA is the third largest bank in Nigeria with a vision to building strong banking businesses across the African continent. The bank offers a wide range of corporate, investment, business and personal banking products and solutions across 700 branches in 19 African countries with presence in New York, London and Paris.