Earnings upgrade captured in ytd performance
- Lowering recommendation to Neutral: Following on from its stellar Q1 results, UBA’s Q2 2017 results showed that earnings grew strongly y/y and surprised positively relative to our forecast. Although both revenue lines grew healthily y/y, the better-than-expected results were driven by a positive surprise in non-interest income which was underpinned by fx-related gains and a substantial reduction in fx revaluation losses. As such, we have increased our 2017-18E non-interest income forecast by 35% on average. The upward revisions underpin the 36% average increase to our earnings forecasts over the 2017E-18E period and the 42% increase to our price target to N10.2 (rolled over to 2018). Our new forecasts translate to a 2017 ROAE of 19.7%, just shy of management’s guidance of 20%. On a relative basis, the shares are trading on a 2017E P/B multiple of 0.7x (for a 2018E ROAE of 17.1%). Having gained 113.0% ytd vs. a 34.6% return for the NSE ASI, the shares are now trading close to our price target and imply a potential upside of 6% from current levels. Consequently, we downgrade our recommendation on the shares to Neutral from Outperform.
- Strong double-digit PBT growth in Q2 2017: UBA’s Q2 2017 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%.