FREE

UNITED BANK OF AFRICA PLC H1'17 - Earnings beat as bank maintains strong earlier run rate

UBA released its long awaited H1’17 earnings, posting another impressive performance and beating earlier run rates across several line items. Particularly, the bank reported strong double digit top and bottom line growth of 35% y/y and 56% y/y respectively with both coming in ahead of our estimates. . Whilst Interest Income came in largely in line with our estimate at ₦155 billion (4% deviation), Non-Interest Income showed a much higher deviation with the income line coming in at ₦60.4 billion vs. our estimate of ₦43.3 billion. Interest Expense rose 24% y/y (pressured by tight system liquidity), NIM remain strong at 7.3% - supported by better asset repricing. Interest Expense rose 24% y/y (pressured by tight system liquidity), NIM remain strong at 7.3% - supported by better asset repricing. We highlight that customer deposits remained relatively flat despite the 23% and 5% YTD growth in retail and current account deposits respectively.                                                   

More importantly, loan loss provision came in largely in line with our estimate at ₦9.4 billion (Vetiva: ₦9.8 billion) – putting annualized cost of risk at 1.2%. However, Operating Expense continued to race north, up 27% y/y and 13% above our estimate. Despite this, the impressive earnings run rate was maintained with PAT up 56% y/y and 10% ahead of our estimate                                                    

Whilst we maintain our 8% loan growth forecast for FY’17 (management guidance: 10%), we raise our Gross Earnings estimate to ₦417 billion (Previous: ₦385 billion). Despite cutting our deposit growth forecast to 4% (Previous: 11%), we raise our Interest Expense estimate to ₦105 billion (Previous: ₦102 billion) due to heightened system liquidity pressure. Similarly, we revise our Operating Expense estimate to ₦186 billion (Previous: ₦167 billion). Furthermore, we maintain our loan loss provision estimate at ₦19.8 billion. Overall, we estimate a PAT of ₦85 billion (Previous: ₦77 billion) for FY’17 – translating to an EPS of ₦2.34. UBA continues to trade at a discount to peers – priced at an FY’17 P/E and P/B of 4.2x and 0.7x vs. tier I averages of 5.3x and 1.0x respectively.                                                 

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.