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UNITED BANK FOR AFRICA PLC (UBA) - Pan-Africa business to boost bank’s profits in FY’22

In its FY’21 results, UBA reported a 7% y/y growth in Gross Earnings to ₦658 billion (Vetiva: ₦646 billion), thanks to an 11% y/y growth Interest Income. The bank’s impressive Interest Income growth was spurred by higher income from loans and advances, a result of the bank repricing a significant portion (over 70%) of its loan book during the year. Furthermore, the bank bucked the trend of lower income from investment securities, reporting a 4% growth in the line item during the year as the bank reported a 32% rise in investment securities during the period.

Despite the impressive FY performance, UBA’s Q4 earnings fell 3% q/q, as interest income declined 8% and NIR fell 37% q/q. Meanwhile, impairments jumped to ₦9 billion from a net positive position in the previous quarter. This means that PBT for Q4 was 37% lower than Q3, while PAT came in 68% lower q/q, the largest drop in profits seen in the final quarter since Q4 of 2019, which was also spurred by a rise in provisions. Therefore, we conservatively place our provisions expectation for2022 at ₦12 billion, a cost of risk estimate of 0.5%, slightly above 2021 figure of 0.4%.  

UBA’s performance in FY’21, as well as our revised expectations for FY’22 have led to revised 2022 Gross earnings estimate of ₦736 billion (Previous: ₦703 billion), Opex of ₦307 billion at a cost-to-income ratio of 65% (FY’21: 63%) and PAT projection of ₦126 billion, a 4% y/y increase (FY’21: 9% y/y). This yields an ROAE of 14.5% (FY’21: 15.8%) and an expected EPS of ₦3.47 (Previous: ₦4.82). Furthermore, given the bank’s dividend payout for the FY’21 period, we maintain our FY’22 DPS projection of ₦1.10. Therefore, we revise our 12-month target price (TP) to ₦14.52 (Previous: ₦13.39), with a potential upside of 71%. The bank’s shares have gained 6% YTD and are currently trading at a P/B of 0.4x vs Tier-1 peer average of 0.5x.