UBA’s unaudited Q3 19 results were better than expected. Net income rose 40% yoy to NGN24.0bn, above our NGN20.0bn forecast. The earnings beat was largely due to better-than-expected core revenue growth, as: (1) term deposits fell 10% qoq, resulting in lower-than-expected cost of funds; and (2) net fee and commission income surged 52% yoy, driven by credit-related fees, e-banking income and capital markets-related revenues. Other positives include strong loan growth, and lower net impairment charge and effective tax rate. These more than offset higher-than-expected operating expenses (up 15% yoy). Compared with Q2 19, net income was down 12% due to lower asset yields, non-core revenues and loan loss recoveries.
Gross loan volumes were up 15% qoq, exceeding GTB's and FBNH's 10% and 3% growth, respectively. UBA’s gross loan/funding ratio improved to 49% at the group level from 42% in H1 19 on our estimates, largely due to the loan volume, but also supported by a decline in total deposits (down 4% qoq). Given the group-level balance sheet position at end-Q3, UBA's Nigeria entity was likely behind the Central Bank of Nigeria's revised 65% threshold for deposit money banks.
Reiterate Buy with an unchanged TP of NGN12.00 (125% ETR), as we remain attracted to the group’s discounted valuation, high dividend yield and regional diversification. That being said, we note that recent regulatory changes in Nigeria present some risk for the banking group. UBA trades at 0.4x FY20f P/B vs frontier peers’ 1.0x. Our top Tier 1 bank stocks are Zenith and GTB.
Our recently updated earnings forecasts and valuation estimates for UBA and the rest of our Nigeria banks coverage can be found here: Nigeria Banks: Good fundamentals, but tricky technicals; Buy.
| NGNmn | Q3 19 | Q3 18 | yoy | Q2 19 | qoq |
|---|---|---|---|---|---|
| Net interest income (NII) | 48,791 | 39,622 | 23% | 52,048 | -6% |
| Non-interest revenues | 34,564 | 30,290 | 14% | 46,878 | -26% |
| Total income | 83,355 | 69,912 | 19% | 98,926 | -16% |
| Total opex | 52,034 | 45,381 | 15% | 57,643 | -10% |
| Pre-provision profit | 31,321 | 24,531 | 28% | 41,283 | -24% |
| Net attributable profit | 24,023 | 17,157 | 40% | 27,296 | -12% |
| Net loans | 1,936,012 | 1,595,909 | 21% | 1,687,506 | 15% |
| Total deposits | 3,372,903 | 3,177,318 | 6% | 3,510,237 | -4% |
| NII/assets | 3.9% | 3.6% | 4.1% | ||
| Cost/income | 62% | 65% | 58% | ||
| ROE | 18.1% | 14.2% | 20.9% | ||
| NPL ratio | na | 6.9% | 5.6% | ||
| Loan provisions/NPLs | na | 99% | 73% |