Earnings Report /
Nigeria

UBA: Q1 20 – Strong core revenue supported by retail and digital banking rollout

  • Lower funding cost on account of cheaper retail deposits supports net income

  • Fee income expands as UBA strengthens its digital banking presence

  • Reiterate Buy with a TP of NGN12 due to discounted valuation, high dividend yield and regional diversification

Nkemdilim Nwadialor
Nkemdilim Nwadialor

Equity Research Analyst, Financials

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Tellimer Research
24 April 2020
Published byTellimer Research

UBA’s net income rose 5% yoy to NGN30.1bn in Q1 20. This performance was largely due to strong core revenue growth as: (1) net interest income grew by 13% yoy owing to lower cost of funds; and (2) net fee and commission income saw a 12% uptick. Other positives include strong loan growth (up 9% qoq), and lower net impairment charge, which offset higher operating expenses (up 13% yoy). 

Reiterate Buy with a TP of NGN12.00 (114% ETR), as we remain attracted to the group’s discounted valuation, high dividend yield and regional diversification. However, recent regulatory changes in Nigeria present some risk for the banking group. The stock currently trades at 0.4x FY 20f PB vs frontier peers’ 0.8x. Our top Tier 1 Nigerian bank stocks are Zenith and GTB.

Key positives

  1. Continued rollout of retail and electronic digital banking saw cost of funds moderate by 0.3ppts yoy to 3% as UBA grew its retail deposits (72% of deposits as at Q1 20), which supported the growth in net interest income. Also, fee income was up 12% yoy on account of UBA’s growing digital banking market share.
  2. Impairment charges was down 1% yoy as the bank booked recoveries on previously written-off loans resulting in an improvement in the cost of risk by 0.32% (vs 0.44% in Q1 19).

Key negatives

  1. Increased operating cost (up 13% yoy) saw cost/income ratio rise by 0.3ppts to 62.4%. We should see improved cost discipline and operational efficiency as the bank continues to strengthen its digital banking presence.
Q1 20 results summary
NGNmnQ1 19Q1 19yoyQ4 19qoq

Net interest income

65,417

58,075

13%

62,961

4%

Net fee income

18,702

16,759

12%

16,710

12%

Total operating income

93,944

83,713

12%

80,299

17%

Operating expenses

58,657

51,944

13%

55,546

6%

Pre-provision profit

35,287

31,769

11%

24,753

43%

Net impairment charge

1,893

1,918

-1%

5,275

-64%

Net Profit

30,101

28,665

5%

7,461

303%

Net attributable profit

28,388

27,999

1%

6,901

311%

Net loans

2,256,429

1,689,668

34%

2,061,147

9%

Total assets

6,351,071

5,114,757

24%

5,604,052

3%

Deposits

4,272,351

3,530,890

21%

3,832,884

11%

Net interest margin

4.38%

4.65%

 

4.77%


Cost/income ratio

62.4%

62.1%

 

69.2%


Cost of credit risk

0.32%

0.44%

 

0.98%


ROE

20.3%

23.1%

 

5.1%


ROA

1.90%

2.24%

 

0.52%


Source: Company financials, Tellimer Research