Company Analysis

UBA: Good earnings story so far


United Bank for Africa (UBA) has written good earning stories of accelerating revenue and strong growth in profit for the past two years. The good earnings story for the bank has continued so far in the 2017 financial year. Revenue is accelerating for the third year running, having grown faster in 2016 than any time since 2011. In terms of profit performance, the bank is showing one of the outstanding growth records in the banking industry this year.

Interest income slowed down last year and non-interest income, led by net trading and foreign exchange income, provided the strength for revenue growth in the year. The position has reversed in the current year. Interest income grew by 44% year-on-year at the end of June to about N155 billion, making up for non-interest income, which grew by 16.5% over the same period.

An increase of 12.6% in investment securities to over a trillion naira appears to have spurred the strong growth in interest income, as loans to customers improved only marginally while lending to other banks dropped by one half at the end of half year operations. The bank had grown loans and advances to customers by over 45% at the end of last year – the highest growth rate in several years.

The full year revenue outlook indicates gross earnings in the region of N450 billion at the end of the 2017 financial year. That is an expected growth of about 17% in gross earnings for UBA in 2017. The bank recorded an increase of 22% in gross earnings in the 2016 financial year.

Interest expenses have been slowing down for the bank since 2014 and came to a marginal increase of 2.9% in 2016. This year has seen resurgence of interest cost at an increase of close to 24% at the end of half year operations. That remains a moderated growth however compared to the 44% leap in interest income. The relative moderation of interest expenses boosted net interest income, which expanded by 58% to over N101 billion at the end of June.

Loan impairment charges grew by 38% year-on-year at the end of June, 2017 but remain relatively low at N9.44 billion compared to the size of the bank’s credit portfolio, which is in excess of N1.5 trillion. Based on the half year position, a drop or a substantial moderation in loan losses is likely for UBA this year after an upsurge of 448% to N27.68 billion last year.

Operating expenses grew by 27% to N95 billion at half year, a relative moderation against the 34.5% increase in revenue. The bank is maintaining a trend of operating cost moderation for the third year running. Operating cost margin declined in each of the preceding two years and a further decline as at June 2017 has lowered the cost margin to 42.6% – the lowest figure in four years.

The favourable cost behaviour seen so far this year has enabled the bank to reinforce profit capacity. Profit margin improved over the review period from 16.4% in the same period last year to 19% at the end of June 2017.

A strong growth of 56% in after tax profit to N42.34 billion at half year therefore reflects the high growth in revenue and a gain in profit margin during the period. Based on the performance at half year, after tax profit is projected at N87 billion for UBA at the end of 2017. The bank closed last year’s operations with an after tax profit of N72.26 billion.

UBA earned N1.21 per share at the end of June compared to 78 kobo in the same period last year. The bank earned N1.91 per share at the end of 2016 and paid out a total of 75 kobo in cash dividends.


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