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.
- 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.
- 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%|
|Net attributable profit||89||79||13%||82||9%|
|Cost of funds||3.5%||3.5%||3.8%|
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.