United Bank of Africa Plc ,UBA, housed in the sprawling edifice of its headquarters in Lagos ,Nigeria no doubt ,, has sprawling resources to attain sprawling height of leadership in the banking industry. Confirming these potentials ,UBA has been able to deliver impressive margins, leveraging the electronic banking platform and benefiting from the growing contributions of its African businesses in Q3,2021 ;its Profit after tax hit N105bn ,a 35 percent jump on year on year record against its Net Assets of N798bn.
But , its ambition of industry leadership , however , remains elusive ; except for the First Bank Holdings which is currently battling with toxic loan debacle since 2015, UBA is only playing catch up game when its market value and profitability status are considered relative to its peers Compared to this performance , Zenith Bank’s Profit after tax grew to N161bn and Net Assets of N1.2tn ; Access Bank Profit after tax grew to N122bn as its Net Assets grew to N799bn ; GTB Profit after tax is N129bn and Net Assets grew to N842bn .
This wide gap between UBA and its tier-1 peers may not be farfetched as the bank is confronted with certain limiting factors putting its leadership ambition on hold ..First , its inability to leverage those resources optimally and resourcefully relative to its peers is its main drawback . Moreover, its lethargic dividend payout is another drawback driving stock price far behind its peers and ultimately its market value ,
Its share price was N8:40k as at the time its Q3 ,results were released . .Compared to this , Zenith Bank share price was N25:25 per share while Access Bank share price stood at N9:50k and GTB share price was N28:50k . In spite of its massive northward swings in varying margins in the recently released 9M 2021 financial statement , United Bank For Africa could still not drive its share price strongly enough to hit N8.65 k its starting price at beginning of this financial year or its 52 weeks high at N9.80k . UBA closed its last trading day , Friday, October 29, 2021, at 8.60 NGN per share on the Nigerian Stock Exchange (NGX), recording a negligible 1.2% gain over its previous closing price of 8.50 NGN. ; this fell below its share price at the beginning of the year .
Analysts and financial observers ,are however ,not caught unaware on the market less impressive reaction to the 9months results recently released attributing it miserable 52k dividend payout at the end of last financial year of 2020 .that is still hunting its share value . UBA’s current dividend yield at 6.4% is low compared to the top 25% of dividend payers in the NG market at 7.29% ; its share underperformed the market which returned 32.1% over the past year. UBA is believed to be currently undervalued .
Ordinarily , its Q3 results were expected to have a dramatic impact on its market value . According to analysts the quality of the fundamentals compels a buy recommendation, as the estimated fair value of N11.41 provides for a 38.78% upside opportunity. However, the stock is currently technically unattractive with the Relative Strength Index (RSI) soaring into the overbought region at 88.33. UBA Price Earnings Ratio , PE ratio , is 2.3x ,indicating investors willingness to pay more per its share though compared to the industry average at 3.7x ,investors optimism is lower .
To analysts , its current less competitive share price could be traced to its unimpressive dividend policy as the only limiting factor that could cage its price and market value as the fundamentals have improved .However , UBA is expected to rev up its dividend this year with the stellar performance that is expected to persist till year end, allowing for a total dividend payment of N1 according to analysts calculations ..
This may not be farfetched . There seems to be rising hope on the horizon except for the misfortunes that hit trading businesses Interest segment sustains resilience – The remarkable performance in UBA’s topline was sustained in the 9M 2021 reporting period, as the lender was able to simultaneously sweat the interest-bearing assets while moderating the interest expended. Interest income inched up by 8.38% to N343.71 billion in 9M 2021, buoyed by a robust growth in the loan book (22.72%), which proved particularly useful in ramping up the interest from term loans to corporates by 3.45%, with this income line item accounting for 37.97% of the total interest income. Similarly, the net interest income was up by 23.25% to N225.86 billion in the review period, benefitting off the aforementioned growth in interest income, as well as a corresponding decline in interest expense, as the lender continues to keep cost of funds low. Also, noteworthy is the 70.33% decline in UBA’s net impairment loss, lending further support to the sturdy topline performance.
Fee-based income growth shrugs off poor trading performance – The waning factor in most banks’ non-interest segment performance is the dramatic decline seen in their trading and foreign exchange segment. However, UBA was not immune to the pared trading segment performance amidst a challenging market atmosphere (relative to the preceding year’s). We saw the bank’s net trading and foreign exchange income dip by 40.23%, but the impact of the decline, alongside a 6.93% increase in operating expense, was easily surged off by an impressive showing in the fee-based segment. Net fees and commission was up by 20.75% to N67.92 billion, supported by a 30.55% growth in fee-based income. Electronic banking income remains the key driver of UBA’s fee-based income, as the line item rose by 50.41%, while accounting for 37.77% of the fees and commission income. While the corresponding expenses in the fees and commission segment also rose by 49.70% , we anticipate some moderation in the electronic banking expense subcomponent; hence, allowing for a more robust performance in the fees and commissions segment in coming years.
Bottom-line mirrors topline growth –
Given the impressive performance recorded in the interest and non-interest segments, UBA was able to scale up their profitability in the review period, with the profit before tax and profit after tax surging by 36.50% and 35.61%, to N123.35 billion and N104.60 billion, respectively (as against N90.37 billion and N77.13 billion in 9M 2020). This impressive profit after tax growth was recorded against a backdrop of a 41.67% increase in the income tax expense. Similarly, the earnings per share was up by 36.11% to N2.94 in 9M 2021.
Loan book continues to strengthen – By increasing the total deposit by 18.46%, UBA was able to ramp up its risk assets, with the loan book rising by 22.72% to N3.01 trillion. However, the lender was unable to meet the 65.00% loan-to-deposit (LDR) regulatory minimum set by the Apex bank, as the LDR for the review period stood at 45.31%. Elsewhere, the capital buffer of UBA remains above the 15% regulatory minimum, at 23.90% in the review period.
