UBA Q2 2017 results: first reaction

NIGERIA | EQUITIES | BANKS | UNITED BANK FOR AFRICA

UBA’s Q2 2017 results which were published this afternoon showed that PBT grew by a stellar 92% y/y. The marked growth in PBT was driven by strong double-digit (36% y/y) growth in pre-provision profits. The growth on this line was strong enough to completely offset a 20% y/y rise in opex. Although both revenue lines contributed to the advancement of pre-provision profits, funding income which was up by 62% y/y was the major driver. As for the non-interest income line, it grew by 14% y/y. Further down the P&L, the combination of significantly higher taxes, up 84% y/y, and an 84% y/y reduction in other comprehensive income (OCI) led to PAT declining by 56% y/y. Sequentially, PBT and PAT were up by 26% q/q and 27% q/q respectively. In stark contrast to the y/y trends, non-interest income which grew by 88% q/q was the major driver. Compared with our forecasts, PBT and PAT beat soundly by 54% and 82% respectively. The beat was down to a positive surprise in non-interest income which surpassed our forecast by 112%.

 

In terms of the H1 trends, PBT of N57.5bn was up by 66% y/y. However PAT declined by -35% y/y because taxes were significantly (99%) higher y/y, while OCI was around 81% y/y lower relative to the prior year. Compared with our forecasts, PBT and PAT beat by 24% and 34% respectively. Again, the positive surprise in non-interest income was responsible for the better-than-expected trends. The bank has proposed an interim dividend of N0.20 which is precisely in line with our forecast. The proposed dividend translates to a yield and payout ratio of 2% and 14% respectively.

 

Despite the strong results, we expect that opex which was up by 20% y/y and loan loss provisions which were up by around 104% q/q will be of key interest to analysts and investors on the bank’s conference call which is billed to hold on Tuesday, 29 August. However, we do not expect the market to place much emphasis on these trends, given the strong earnings that the bank has delivered. In terms of the balance sheet trends, while loans were up marginally by 1% q/q, deposits were down by -6% q/q in line with the trends seen with other banks that have reported their Q2 results. The q/q decline in deposits can be linked to high yields on T-bills and improved liquidity on the NAFEX window which have combined to lead to a loss of deposits.

UBA’s H1 PBT of N58bn tracks well ahead of consensus PBT forecast of N88bn for 2017. As such, we expect to see marked upward revisions to consensus PBT forecasts and a positive reaction from the market.

Ytd the shares have outperformed the market. They have gained 110.0% ytd, outperforming the market by 72.5%.  We rate the shares Outperform. Our estimates are under review.

UBA Q2 2017 results: actual vs. FBNQuest Research estimates (N millions)

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