UBA reported FY 19 net profit to shareholders of NGN89bn, up 13% yoy (in line with our forecast). The positive performance was mainly driven by:
- Higher net interest income (up 8% yoy); and
- Higher non-interest income (up 20% yoy) driven by a 39% growth in electronic banking income.
The Bank has proposed a final dividend of 80 kobo, bringing the total dividend for FY 19 to NGN1.00 which represents a DY of 15%.
We have a Buy rating on UBA with a TP of NGN12.00 (95% ETR), bolstered by the group’s attractive valuation, high dividend yield and regional diversification. UBA trades at 0.4x FY 20f PB vs. frontier peers’ 0.9x.
Key positives
- Net interest income was up by 8% yoy due to increased lending (up 20% yoy), as the bank was able to maintain its lower-priced retail deposits (deposits grew by 14% yoy). On a quarterly basis, loans were up 6% as banks continue to increase to their lending to real sector on the back of the minimum LDR of 65%.
- Asset quality also improved, with a 1.2ppts reduction in the NPL ratio to 5.3% and the capital adequacy ratios was strong, at 23.4%.
- Other positives include a 1.3 ppts improvement in cost/income ratio and a lower effective tax rate – at 20% for FY 19 compared with 26% for FY 18.
Key negatives
- Lower net interest income/asset ratio due to lower yields on investment securities.
- Higher net impairment charge despite a reduction in stage 3 loans.
| NGNbn | FY 19 | FY 18 | yoy | 9M 19 | qoq |
|---|---|---|---|---|---|
| Net interest income | 222 | 206 | 8% | 159 | 40% |
| Non-interest income | 44 | 37 | 20% | 44 | 1% |
| Total income | 346 | 308 | 12% | 266 | 30% |
| Operating expenses | 217 | 197 | 10% | 162 | 34% |
| Pre-provision profit | 129 | 111 | 16% | 104 | 24% |
| Net impairment | 14 | (1) | 1279% | 8 | 63% |
| Net attributable profit | 89 | 79 | 13% | 82 | 9% |
| EPS | 2.52 | 2.20 | 14% | 2.32 | 9% |
| Net loans | 2,061 | 1,715 | 20% | 1,936 | 6% |
| Total deposits | 3,833 | 3,349 | 14% | 3,373 | 14% |
| NII margin | 4.2% | 4.6% | 4.3% | ||
| Cost/income ratio | 62.7% | 64.0% | 60.8% | ||
| ROE | 16.2% | 15.2% | 20.7% | ||
| Cost of funds | 3.5% | 3.5% | 3.8% | ||
| NPL ratio | 5.3% | 6.5% | N/A | ||
| Provisions coverage | 76% | 78% | N/A |
Management Outlook
In 2020, management says it will pursue a deepening of market share across the group’s subsidiaries, leveraging technology, human resources and a customer-centric strategy. The group’s strong asset book and capital strength provide enough headroom for growth.