March 18, 2019/ CardinalStone Research
United Bank for Africa Plc (UBA) FY’18 results – gross earnings grew by 4.7% YoY to N465.9 billion, in line with our expectation of N475.5 billion (-2.0% deviation). Profit before taxes, at N106.8 billion (FY’17 – N104.2 billion), also came in in line with our estimate of N105.5 billion (+1.2% deviation). UBA’s after tax earnings rose mildly by 1.4% YoY to N78.6 billion, but this slightly underperformed our projection of N82.3 billion (-4.4% deviation), due to difference in effective tax rate (FY’18 est. – 22%; FY’18 act. – 26%).
UBA proposed a final dividend of N0.65 per share. This translates to a dividend yield of 8.7% based on the last close price of N7.45.
- Interest income rose during the quarter (+15.1% QoQ) to N93.9 billion, supported by a 66.3% QoQ increase in interest income from investment securities to N47.0 billion. During the quarter, interest income from loans and advances declined by 20.3% QoQ.
- Non-interest income was significantly weak during the quarter at N15.3 billion (-49.4% QoQ), weighed by a 22.0% decline in net fee and commission income and a loss of N726 million in net trading and FX income (compared to a gain of N12 billion in Q3’18).
- Impairment charges for the quarter reflected recoveries of N6.2 billion in Q4’18. Operating expenses however, rose by 6.3% to N48.3 billion, with cost to income worsening to 68.7% from 64.9% in Q3’18.
- Though before tax earnings rose 31.9% for the quarter, after tax earnings declined by 5.6% due to higher effective taxes (Q4’18 – 38.9%; Q3’18 – 14.6%)
- Net loans and total assets rose to N1.7 trillion (+3.9% YtD) and N4.9 trillion (+19.7% YtD) respectively. Deposits also grew to N3.4 trillion (+22.5% YtD).
UBA was able to grow loans, albeit modestly (+3.9% YoY) in FY’18, however, this did not translate into growth in interest income from loans and advances, which declined 7.1% YoY. The growth in overall interest income figure (+11.4% YoY) was largely driven by investment securities. Cost-to-income also deteriorated to 63.9% from 58.0% in FY’17, which worries us. Cost of funds also weakened to 4.2% (FY’17 – 3.7%), despite improvement in CASA mix at 76.9% (FY’17 – 74.6%). Contribution from the bank’s Nigerian operations rose to 67.1% (FY’17 – 65.8%), while pan-African contributions declined to 30.1% (FY’17 – 31.5%).
Based on our last review, our target price for the counter is N11.67