CSL Stockbrokers, Renaissance Capital Rate UBA’s Q1 Results High

By Goddy Egene

Financial analysts from CSL Stockbrokers and Chapel Hill Denham and Renaissance Capital have rated the first quarter results of United Bank for Africa (UBA) Plc high.  UBA   reported gross earnings of N74.13 billion for the first quarter ended March 31, 2016, down from N83.1 billion in 2015 but grew its profit after tax (PAT) from N16.956 billion to N16.986 billion.  Reviewing the performance, analysts at CSL Stockbrokers, (a subsidiary of the FCMB Group) noted that the bank maintained the strong run-rate from last year, with net profits coming ahead of consensus expectations. For analysts at Chapel Hill Denham, they noted that the profit of the bank translates to annualised return on average equity (ROAE) of 21.7 per cent, which outperformed their 15.3 per cent forecast and Bloomberg consensus expectation of 16.3 per cent.

Analysts at Renaissance Capital  said that the profit was 13 per cent higher than their forecast, mainly due to lower than expected impairment charge, as the bank maintained its benchmark asset quality; 1.7 per cent NPL ratio and 0.4 per cent cost of risk.

Notwithstanding regulatory removal of commission on turnover, which is now zero, in line with the CBN 2016 Revised Guidelines on Bank Charges, UBA grew fees and commissions by 12.5 per cent to N15.3 billion in Q1. Analysts at Chapel Hill Denham said the impressive growth in fees may be due to higher electronic banking income. This strong growth in fees may be unconnected to the bank’s recent investment in its digital banking platforms, as explained by the Group Managing Director, Phillips Oduoza, at his recent conference call with analysts and investors.

Oduoza said that whilst the bank’s strategy of investing in alternative service platforms like online banking, mobile banking, social media banking, ATMs and PoS was to efficiently service its growing customer base and deepen financial inclusion at a relatively lower cost, the investment in digital technology has proven to be worthwhile, as it is helping the bank to grow its transaction banking volumes, with attendant fee income.

 Analysts at Chapel Hill Denham noted that the improved deposit mix and lower cost of funds indicate that UBA is gaining strides on penetrating the retail space.

The bank grew loan book by one  per cent in Q1 with the net loan book settling at N1.05 trillion as at March 2016, compared to N1.04 trillion in December 2015. According to the anaysts, UBA benefited from lending opportunities, despite the tough macroeconomic environment during the period.

They, however,   the analysts said  it will still be difficult for the bank to meet its 10-15 per cent  net loan growth target for the year, despite exploring new opportunities for risk asset creation. To most analysts, a differentiating factor for UBA Plc is its tight hold on asset quality, which ensured moderate impairment charges and strong profitability.

Summarising their position on UBA’s result analysts at CSL Stockbrokers noted that barring any negative surprises that significantly raise the bank’s cost of risk in subsequent quarters, at the current run-rate, earnings are set to surpass 2016e forecast. Thus, they noted there is significant upside potential relative to their target price of N7.10 on the shares of UBA Plc. Analysts at Chapel Hill Denham maintained their earnings forecasts, target price  of N5.78 and BUY rating on UBA shares.