UBA Plc: Greenwich maintains BUY rating, say stock trades at discount

Analysts at Greenwich Trust Limited maintained BUY rating for United Bank of Africa share, though lender reported moderate performance in the first quarter 2020.

The group had recently released its Q1 2020 earnings report where it raised profit by 5%.

UBA share price closed trading session yesterday at ₦5.85 after it dropped 5 kobo in the previous day.

Then, lender’s market capitalisation settled at ₦200.066 billion on 34,199,421,368 shares outstanding

Analysts held that the bank’s result showed a moderate performance in earnings when compared with the corresponding quarter of 2019.

It recorded gross earnings of ₦147.16 billion in Q1 2020 from ₦131.69 billion in Q1 2019 indicating an increase of 11.75% in earnings year-on-year.

The growth in gross earnings was driven by the collective positive performance of interest income and non-interest income by 10.67% and 11.27% respectively.

Interest income rose by 10.67% to ₦109.10 billion from ₦98.59 billion in Q1 2019.

Analysts explained that the growth was supported by increased interest received on investment securities by 3.46%.

Interest received on loans and advances to corporations (25.25%) and interest on loans and advances to individuals (21.52%).

However, the bank’s loan book spiked by 9.47% to ₦2.25 trillion in Q1 2020.

Also, interest expense advanced by 7.91% from ₦40.48 billion in Q1 2019 to ₦43.69 billion in the period under review.

Analysts stated that the rise in interest expense resulted from the rise in interest paid on borrowings by 5.99% to ₦10.57 billion, which accounted for about 60% of interest expense.

Also, interest expense on bank deposit increased by 103.12% to ₦5.20 billion while interest expenses on customers deposit dropped marginally by 0.13% to ₦10.23 billion.

Consequently, net interest income settled higher by 12.64% to ₦65.41 billion from ₦58.07 billion in Q1 2019.

The bank’s non-interest revenue advanced by 11.27% to ₦28.52 billion in Q1 2020, propped by 48.89% increased net gains from trading and foreign exchange income and 11.59% surge in net fees and commission in the period under review.

Meanwhile, other operating income dropped by 75.16% due to flat dividend income.

Analysts explained that the increase in foreign exchange income was a result of the drop in fair value loss on derivative instrument by 99.82%.

Operating income stood at ₦93.34 billion from ₦83.71 billion, indicating an increase of 12.22% from the corresponding period.

The bank operating expense increased by 12.92% to ₦58.65 billion due to 11.56% rise in depreciation expenses, 21.47% in personnel expenses and 7.69% in other operating expenses.

Consequently, the bank’s cost to income ratio stood flat at 62.44% from 62.05% in Q1 2019.

The bank recorded 8.82% and 5.01% increase in profit before tax and profit after tax to ₦32.72 billion and ₦30.10 billion respectively.

The group’s net loans and advances in the period under review advanced by 6.48% to ₦2.30 trillion.

Meanwhile, the group total assets expanded by 13.32% to ₦6.35 from ₦5.60 trillion in FY 2019.

Also, Customer deposits rose by 11.47% to ₦4.27 billion from ₦3.83 trillion in financial year 2019.

With a blended target price of ₦12.55, we maintain a BUY rating for UBA stock at current market price, as its trade’s at a discount to our estimated value.

UBA Plc: Analysts at GTL maintain BUY rating, say stock trades at discount