UBA’s Profitability Puzzle: Rising Costs and Stock Valuation Challenges Cloud Bright Prospects

United Bank for Africa’s (UBA) financial performance presents a mixed bag, with a net profit margin of 21.8% and a cost to income ratio of 57.1%, indicating room for improvement in operational efficiency. Despite a robust gross earnings of N2.47 trillion, the bank’s net profit of N537.5 billion is a testament to the challenges posed by rising operating expenses and declining non-interest income. With an earnings per share of N26.20, investors may be concerned about the bank’s ability to sustain growth, particularly given the competitive landscape and regulatory pressures. To drive shareholder value, UBA must focus on optimizing its cost structure, diversifying revenue streams, and leveraging its strong capital base to support growth initiatives

United Bank for Africa (UBA) faces significant headwinds in its profitability, with a decline in profit before tax to N578.6 billion for the period ended September 2025, from N603.5 billion in the same period in 2024. The bank’s income mix challenges are evident, with a squeeze on net interest income margin due to rising interest expenses, and a decline in non-interest income. The 28.9% decline in non-interest income to N310.1 billion, largely driven by reduced trading and foreign exchange income, is a concern. Additionally, employee benefit expenses rose by 20.1% to N270.8 billion, putting pressure on the bank’s cost-to-income ratio.

The above challenges have continued to take a toll on its stock valuation . United Bank for Africa (UBA) has been assessed by Simply Wall St as overvalued by 105.8%, with a current share price of ₦48.30. Despite this, the bank’s low Price-to-Earnings (P/E) ratio of 2.9x suggests it might be undervalued compared to its peers, who have an average P/E ratio of 8.6x in the African Banks industry ¹ ².

A closer look at UBA’s fundamentals reveals some weaknesses. The bank’s earnings growth over the past year (9.5%) is below its 5-year average (44.7% per year) and the Banks industry average (23.2%). Additionally, UBA’s revenue growth (16.2% per year) is forecast to be slower than the NG market (18.4% per year) ³ ⁴.

Key Concerns:

• Slower Earnings Growth: UBA’s earnings are forecast to grow at 16.9% per year, slower than the NG market (20.3% per year)
• Lower Return on Equity: UBA’s Return on Equity (18.1%) is considered low
• High Volatility: UBA’s weekly volatility (5%) has been stable over the past year, but still a concern
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Comparison to Peers:
Company Forward P/E Estimated Growth
UBA 2.9x 16.89%
GTCO 5.7x 18.84%
ZENITHBANK 3.4x 16.82%
ACCESSCORP 2.1x 6.85%
Given these weaker fundamentals, Simply Wall St’s assessment of UBA as overvalued seems justified. Investors should exercise caution and consider these factors before making a decision ².

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Despite these challenges, UBA has demonstrated resilience in its profitability. The bank’s diversified revenue streams have helped mitigate the impact of volatility in interest income, with fees and commission income growing by 3.9% to N407.9 billion. The bank’s cost management efforts are also yielding results, with operating expenses declining by 4.1% to N529.8 billion. UBA’s asset quality has improved, with loans and advances to customers growing by 3.5% to N7.2 trillion, and deposits from customers rising by 8.7% to N23.8 trillion. The bank’s capital adequacy ratio remains robust, providing a buffer against potential shocks.

To drive sustainable growth, UBA must address its income mix challenges and seize opportunities. The bank should focus on diversifying its revenue streams, optimizing its cost structure, enhancing asset quality, and leveraging its strong capital base to support growth initiatives. By doing so, UBA can overcome its current challenges and create value for stakeholders