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With brilliant results released in the first quarter of the financial year 2021 , United Bank for Africa ,indeed ,has sent signals of better glimpses for the rest of the year . Practically all other performance metrics looked up in the first quarter of a year . Though  the top line witnessed a marginal improvement ,the    bottom line was   seismic in  flight  . The first quarter result is the beginning of another attempt to wring good profit as was done in the last financial year in its attempt to reaffirm leadership of the sector.

It gross earnings lifted  marginally to N155.4billion, in the first quarter of 2021 from N147.2billion in 2020Q1 , a 5.6% YoY growth ; profit before tax inched up from N40.6billion to N32.7billion in 2020Q1 , a 24.0% YoY growth ; profit after tax zoomed from N38.2billion, a 27% YoY growth, compared to N30.1billion in 2020Q1 while PAT growth after other comprehensive income and minorities accelerated by 275% y/y because OCI improved by  N70m from – N15bn loss Q1 ’20 . . Analysts  said  they expect  UBA’s  PBT growth to remain healthy over the next few years, driven by credit growth and margin improvement

By its first quarter results UBA has proved ,it has what it takes to deliver world class values to its investors in the ongoing financial year. The bank’s performance is a harbinger of a juicier outing in the 2021 financial year.   The bank was able to wring better margins from improved profits as pre-tax profits  margin rose to 26 percent from 22percent  while net profit margin grew to  24.5% percent from  20  percent.  .

 Underpinning the double-digit earnings growth were increases of 13-14% y/y on both revenue lines and a -23% y/y reduction in credit loss impairments. This impressive performance leaves investors craning to take another look at the bank’s performance

Elated by the bank’s impressive performance , Proshare Nigeria , a high profile investment and financial firm in its analysis noted thus: “At current levels, we see an upside potential of c.100% in the shares. We keep our Outperform rating on the shares. Following the positive earnings surprise, the firm increased its ’21-22f EPS forecasts by c.4% on average. Its new price target for UBA is  N14.2   Currently , the stock is selling at N7.30 .This is an indication that the stock is undervalued and so has room to appreciate.

    The firm says that ‘Residual Income and price multiples on forecasted fundamentals and historical metrics, we recommend that investors take advantage of this attractive yield and thus place  a “BUY ” rating on this stock.’ However ,it says  there is room for improvement on the  performance and much of that growth can be realized,   

UBA ’s current trading price represents a P/E of 2.1x and 0. 3x  on its book value per share  .Analysts believed  UBA is good value based on  this PE Ratio  of 2.1x  compared to the NG Banks industry average (4x) just as it is good value based on its PE Ratio  of 2.1x compared to the market (7.9x).UBA’s PB Ratio (0.3x) is in line with the NG Banks industry average ; when its growth rate is factored in it is equally is good value based on its PEG Ratio (0.2x) .Currently   trading  at a discount to   the price to earnings  and  book value,, UBA  stocks could  be classified as a blend of  a  growth and value stock ,   considered to be undervalued but also  has  bright future potential   The bank by its performance metrics  are highly competitive as the company’s financials are still relatively solid  and ideal entry point for value seekers  .       The optimism expressed  above  may not be farfetched. .It is driven by its strong fundamentals, the figures , price stability and impressive dividend returns   .In spite of a highly uncertain macroeconomic environment the bank recorded impressive results, a situation analysts linked to its capacity of its business to sustainably grow earnings

Though the current price is below the target N 14 , a PE ratio of 2.1 times multiple indicate that investors are willing to part with more to own the bank’s stocks. It’s difficult not to do so since the bank delivered higher Returns on equity and assets in the first quarter of 2021 relative to the corresponding period of 2020 . Return on Average Equity(RoAE): 20.5%; compared to 19.9%in 2020Q1 while ROA was 2% compared to 1. 9% : These are signals of better profitability and efficiency.  

 The price movements of the bank is also adjudged to to enjoy enormous stability. UBA stock is less volatile than 75% of NG stocks over the past 3 months, typically moving +/- 3% a week while its weekly volatility (3%) has been stable over the past year .The bank’s earnings grew by 34.5% over the past year while in last five years its dividend return was 170.9% against price return of 50.0% .By this  the bank outperformed the industry which returned 65.3% and 13.4% and the market with its 21.5%-7.9% returns in dividend and price respectively United Bank for Africa has continued to maintain strong and competitive dividend yield over time .It current dividend yield at 7.07% is adjudged reliable and sustainable by analysts ? UBA’s dividend is higher than the bottom 25% of dividend payers in the market at 3.75% .Also ,  the payments have increased over the past 10 years and well covered by earnings.

 When it is said that one is a good or an astute banker ,what ,in fact , is meant is that one is a shrewd lender ; one who lends money profitably and safely .In the core business of banking or maturity transformation ,UBA has proved that it is not what you make that matters but what you make out of it . Though this feat was delivered amidst both institutional and environmental challenges . .In the past few years  getting good returns from earnings  assets was a hard nut to crack . In the first quarter of 2021   ,low yield environment and high degree of risk in lending posed a threat as usual .

But the management of UBA outwitted the difficult   terrain . Though its interest income declined marginally by 0.5% to N108 590 in 2021 from N 108, 590b with deft application of experience ,the management was able to manage down its expenses to get a positive and whooping amount of net interest income .With 21.7% decline in interest expenses ,its net interest income got boosted by 14% to hit N74,381b in the first quarter of 2021 from N65,417b in 2020 .This boiled down   to a net interest margin of 4.9%

The result also showed a bank  is equally paying  attention to commission yielding businesses as net fee and commission income  and not only on interest bearing activities   displayed positive outlooks  ;  its net fee and commission income inched up by 8.7% to N20,336b from N18,702b    . .

 .It would have been higher but for 53% increase in fee and commission expenses against 23.8% jump in fee and commission income.   Despite leveraging both interest earnings assets and non interest revenue line ,the former  expectedly  dominated its revenue generation . Its recorded a very quality of earnings as income from its core business out of the total or gross earnings was 70% . The thin growth in  gross earnings is  on the back of marginal decline in interest income . However,    improvement net interest income signifies  skillful handling of the task of  maturity transformation activity or ability to wring gains from interest bearing assets. But more importantly , its ability to manage down    interest expenses very well is the joker that beats the challenges low yield environment     The racing net interest income metric, gives a sense that the bank is earning more from interest income than it is expending on interest expenses. The bank’s CASA ratio (low-cost deposit to total) improved to 82.6% from c.72.4% in Q1 ’20 (81.8% Q4 ’20. This equally brought down the funding costs .     This is in addition to  a marginal drop   in the bank’s cost-to-income ratio settled at 60.4%; compared to 62.4% in 2020Q1.    Also, the bank’s robust risk management framework ensured that the cost of risk improved by 20bps y/y to 0.3%. This was achieved through the reduction in impairment charges re-affirming the bank’s enhanced asset quality    .     

  UBA’s Balance sheet remained well structured, diversified, and resilient as Total assets inched to N7.9trillion, from N7.7trillion as at FY2020 , a 2.5% YTD growth , Net Loans to N2.8trillion; a 4.6% YTD from N2.6trillionas ; shareholders’ Funds: N762.4billion, up 5.3% compared to N724.1 billion as at FY2020  The bank’s balance sheet was robust as the loan to deposit ratio, liquidity ratio and capital adequacy ratios were   all well above the regulatory threshold. The bank’s customer deposits grew by  2 per cent to N5.8trillion, from N5.7trillion    . The bank’s CASA ratio (low-cost deposit to total) improved to 82.6% from c.72.4% in Q1 ’20  and 81.8% Q4 ’20  providing it with a platform to re-balance its deposits mix. 


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