Earnings Report /
Nigeria

UBA: FY 19 results: Strong loan growth and fee income gains boost earnings; Buy

  • Positive performance – UBA reported FY 19 net profit to shareholders of NGN89bn, up 13% yoy (in line with our forecast)

  • We have a Buy rating on UBA, with a target price of NGN12.00 – 95% ETR

  • UBA trades at 0.4x FY 20f PB versus 0.9x for its frontier market peers

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

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Tellimer Research
2 March 2020
Published byTellimer Research

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:

  1. Higher net interest income (up 8% yoy); and
  2. 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.
Table 1: FY 19 results summary 
NGNbnFY 19FY 18yoy9M 19qoq
Net interest income2222068%15940%
Non-interest income443720%441%
Total income34630812%26630%
Operating expenses21719710%16234%
Pre-provision profit12911116%10424%
Net impairment14(1)1279%863%
Net attributable profit897913%829%
EPS2.522.2014%2.329%
Net loans2,0611,71520%1,9366%
Total deposits3,8333,34914%3,37314%
NII margin4.2%4.6%
4.3%
Cost/income ratio62.7%64.0%
60.8%
ROE16.2%15.2%
20.7%
Cost of funds3.5%3.5%
3.8%
NPL ratio5.3%6.5%
N/A
Provisions coverage76%78%
N/A
Source: Company accounts, Tellimer Research 

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.