United
Bank for Africa (UBA) Plc is on the top list of companies with well-rounded
performance. UBA’s top-of-the-chart performance at the stock market combines
with considerable growth in all key fundamental indicators to make the bank the
best performing banking stock in recent period. Taofik
Salako, in this report, reviews the interplay of fundamental earnings and share
price appreciation
United Bank for Africa (UBA) Plc outperformed all banking
stocks in the first quarter of 2017 with a share price appreciation of 28.22
per cent. It had recorded the second highest price gain of 33.1 per cent in
2016, just slightly under three points behind Guaranty Trust Bank (GTB), which
led the sector with 35.9 per cent.
Altogether, UBA’s share price had grown by more than 60
per cent in the past 15 months, the highest by any bank and one of the few
bright spots in the long-running depression at the stock market. Average return
at the Nigerian Stock Exchange (NSE) in the first quarter of 2017 was negative
at -5.05 per cent.
The NSE Banking Index was down by 0.03 per cent while the
NSE 30 Index, which tracks large-cap stocks, was almost on the average with a
three-month return of -4.93 per cent. In 2016, the stock market had
recorded a full-year average return of -6.17 per cent, equivalent to net
capital loss of N604 billion.
Only 19 companies, including three banks, recorded a
capital gain of 20 per cent and above in 2016, underlining the general
downtrend that marked price changes during the period. A long-running
depression had seen quoted equities losing N4 trillion in the past three years,
including N1.75 trillion and N1.63 trillion in 2014 and 2015 respectively.
UBA’s share price appears to be riding on the crest of
positive analysts’ reviews. There is almost analysts’ consensus on the
attractiveness of the UBA. Investment research and rating firms such as
Renaissance Capital, CSL Stockbrokers, Fitch and Augusto among others had
maintained that UBA has strong fundamentals to support substantial price
appreciation. UBA Group’s audited report and accounts for the year ended
December 31, 2016 supported the positive view of its earnings potential, in
spite of the Nigerian economic recession.
Improving earnings
Key extracts of the Group’s audited report showed
impressive growths in the top-line and the bottom-line as it continued to
expand its assets base. Group;s gross earnings rose by 21.9 per cent from
N314.84 billion in 2015 to N383.65 billion in 2016. Interest income had grown
by 15 per cent from N229.63 billion in 2015 to N263.97 billion.
With 2.9 per cent increase in interest expense from N96.03
billion to N98.77 billion, net interest income rose by 23.7 per cent to N165.2
billion in 2016 compared with N133.6 billion in 2015. This underlined the
profitability of the group’s core banking business. Group profit before tax
grew by 32.4 per cent to N90.64 billion in 2016 as against N68.45 billion in
2015. After taxes, net profit rose by 21.1 per cent from N59.65 billion to
N72.26 billion. With these, earnings per share increased from N1.79 in 2015 to
N2.04 in 2016.
UBA Group’s balance sheet also emerged stronger with total
assets rising by 27.3 per cent from N2.75 trillion in 2015 to N3.5 trillion in
2016. Customers’ deposit rose by 19.7 per cent from N2.08 trillion to N2.49
trillion. Loans and advances recorded above average growth of 44.2 per cent to
N1.50 trillion in 2016 as against N1.04 trillion in 2015, underlining the
bank’s commitment to economic development. Shareholders’ funds also increased
by 33.5 per cent from N325.83 billion in 2015 to N434.85 billion in 2016.
Key underlying ratios showed that the growth in 2016 was
driven by improvements in the intrinsic operational performance and management.
Net interest margin, which underlines the profitability of the core banking
business, improved to 62.6 per cent in 2016 as against 58.2 per cent in 2015.
This corroborated the reduction in cost of fund. Pre-tax profit margin, which
measures the underlining profitability of the group’s businesses, also improved
from 21.7 per cent in 2015 to 23.6 per cent in 2016.
On the back of improved earnings, the bank increased
dividend payout to shareholders by 25 per cent, further enhancing the total
real return on investment built up significantly by capital appreciation.
Shareholders received final dividend payment of N19.9 billion for the 2016
business year, in addition to N7.3 billion interim dividend paid after the
audit of its 2016 half-year results.
With this, shareholders received a final
dividend per share of 55 kobo in addition to interim dividend of 20 kobo,
bringing total dividend for the 2016 business year to 75 kobo as against 60
kobo paid for the 2015 business year. A dividend yield of more than 14 per cent
further placed UBA within the top yields at the stock market. This surpassed
the 13.01 per cent coupon on the two-year tenored Federal Government National
Savings Bonds.
Sustained growth
The latest audit report confirmed UBA Group’s steady
performance over the years. A five-year medium term review showed that total
assets have grown steadily from N2.27 trillion in 2012 to N3.50 trillion in
2016. Net loans and advances more than doubled from N658.9 billion in 2012 to
N1.50 trillion in 2016. Customers’ deposits also followed the uptrend, jumping
from N1.72 trillion in 2012 to N2.49 trillion in 2016.
Shareholders’ funds rose
consecutively from N189.11 billion in 2012 to N434.85 billion in 2016. Profit
before tax, which stood at N52.01 billion in 2012, had defied recession to rise
to N90.64 billion in 2016 while profit after tax rose from N54.77 billion in
2012 to N72.26 billion in 2016.
Most analysts have rated UBA Group high on its
fundamentals. “We note improvement in profitability and the bank’s good asset
quality. The rating takes into cognizance the weak macroeconomic climate on the
banking industry’s asset quality, in which we do not expect UBA to be excluded.
Nonetheless, we note positively its diversified geographical reach, which will
cushion to an extent the impact of the weak Nigerian economic climate,” Agusto
& Co stated in its recent credit rating report.
Nigeria’s foremost local rating agency, Agusto &
Co, had upgraded UBA’s rating from “A+” to “Aa-”, with a stable outlook,
citing the bank’s improved capitalisation, good liquidity and large pool of
stable deposits, strong domestic presence supported by the bank’s extensive
branch network and growing alternative banking channels.
Also, Fitch International, one of the foremost global
rating agencies, in its latest report affirmed and upgraded its ratings for the
bank citing strong earnings and asset quality. Fitch affirmed UBA’s viability
rating at “B” as the pan-African banking group continues to sustain its
benchmark asset quality and strong profitability amidst industry and
macroeconomic challenges. UBA is one of the few banks with strong risk
management framework, which has helped kept non-performing loans ratio at a
moderate level of 1.74 per cent as at the end of March 2016.
Strength in diversity
Other African subsidiaries contributed about one hird of
the group’s profit in 2016, reflecting the increasing market share of the group
outside its Nigerian home. UBA operates in 18 other African countries including
Ghana, Republic of Benin, Liberia, Cote d’Ivoire, Burkina Faso, Guinea,
Senegal, Sierra Leone, Mozambique, Zambia, Uganda, Tanzania, Kenya, Congo DR,
Congo Brazzaville, Cameroon, Chad and Gabon. UBA also has presence in United
Kingdom, United States and France.
Geographical segment analysis showed the group performance
was buoyed by above average growths in its foreign subsidiaries.
The other 18
African subsidiaries recorded pre and post tax profit of N31.4 billion and
N24.32 billion respectively on total earnings of N121.9 billion in 2016,
considerable growths on pre-tax profit of N18.8 billion and post-tax profit of
N14.14 billion recorded on total incomes of N67.72 billion in 2015. Other
non-African global operations also improved in 2016 with total income of N9.8
billion and pre and post tax profits of N3.4 billion and N3.37 billion
respectively. Other non-African global subsidiaries had recorded gross earnings
of N6.01 billion and pre and post tax profit of N1.95 billion each in 2015.
Operating segment analysis also showed that the overall
performance rested on evenly spread improvements across the key business
segments. Corporate banking recorded gross earnings of N116.63 billion, profit
before tax of N43.46 billion and profit after tax of N37.69 billion in 2016
compared with N101.07 billion, N29.04 billion and N25.31 billion recorded
respectively in 2015. Retail and commercial banking segment, the largest
segment, grew top-line to N227.57 billion in 2016 with profits before and
after tax of N29.44 billion and N20.05 billion respectively. Total revenue
in the segment had stood at N185.19 billion in 2015 with profit before tax of
N26.52 billion and profit after tax of N23.11 billion.
Outlook
The board and management of UBA said the banking group is
well-positioned for sustainable long-term growth that will continue to ensure
commensurate returns to shareholders. Chairman, United Bank for Africa (UBA)
Plc, Mr. Tony Elumelu, noted that most African countries were implementing
policy measures that should help stimulate inclusive economic growth, ease macro
pressures and lower the cost of doing business. According to him, while Africa
has experienced a difficult period; the UBA group welcomed 2017 with renewed
optimism as it truly believes that “Africa is Rising”.
“Our pan- Africa operations have delivered on the promises
we made at the outset of our growth strategy and we are beginning to reap the
benefits of one the largest network in Africa. As we navigate the fast changing
market place, we are increasingly digitalising our core business, as we explore
new markets and means of embracing customers experience, gain increased share
of customers’ wallet and offer new services.
I am very optimistic that we will
sustain the strong growth trajectory, as we continue to gain market share,
leveraging our core values of enterprise, excellence and execution,” Elumelu
outlined.
Group managing director, United Bank for Africa (UBA) Plc,
Mr. Kennedy Uzoka also assured that the bank is optimistic of continuing growth
in the years ahead.
“The 2017 outlook remains positive in most of our markets.
We are not aware unaware of the macro challenges, competition and constantly
changing customer preferences. We will further sweat our unique Pan
Africa platform to improve productivity, extract efficiency gains and grow our
share of customers’ wallet across all business lines and markets,” Uzoka said.
According to him, as the banking group continues with its
customer first philosophy, shareholders can look forward to better performance,
especially with the outlook remaining positive in most of the group’s markets.
“We will build on our strong governance culture,
zero-tolerance for infractions and transparency in furthering our frontiers of
leadership in the African market,” Uzoka said.
Source:Nation
Tags
Business