Analysts Raise UBA Earnings Projection after Approval to Operate in Dubai

Analysts Raise UBA Earnings Projection after Approval to Operate in Dubai

Nigerian based multi-asset investment firm, CardinalStone Partners Limited, has upgraded the price target of the United Bank for Africa Plc to N10.94 following an upward adjustment to the Pan African lender’s earnings outlook for the year.

The Pan African lender is placed on CardinalStone Securities Limited buying rating. At the reference market price of N7.75 kobo, analysts said in the equity report that Ticker: UBA is trading at a deep discount to its 5-year mean price to book ratio.

In the firm’s projection of the year, analysts see UBA’s Pan African footprint as a supporting factor for the group’s earnings performance in the financial year 2022. According to analysts, a higher yield would stall margin contraction in the current year, noting that despite the slight moderation in asset yields in the first quarter of 2022, they remain constructive on UBA’s net interest margin (NIM).

For the current year, equity analysts indicate the expectation that UBA Group’s net interest margin will improve by 20 basis points from the financial year 2021 level.

“Our positive view on NIMs is built around the monetary policy committee-induced rise in interest rates which is likely to filter through to asset yields. the sustained increase in interest-earning assets (5-year CAGR of 14.2%) bodes well for interest income and the high proportion of CASA in the deposit mix is expected to limit the negative pass-through of higher interest rates”

Elsewhere, analysts forecast non-interest income (NIR) to rise by 20.7% year on year to N152.4 billion from the previous estimate of N147.9 billion. “Our upward NIR adjustment should reflect improvements in net fee & commission income and its trading book. Our argument for the former is likely supported by the increase in transaction volumes on e-banking channels”.

Analysts said the 3-year ebanking income average annual growth (CAGR) of 31.1% also corroborates this position, especially given that the line item constitutes about 40.0% of the total fee and commission income. CardinalStone analysts said their view on trading income is partly hinged on the potential impact of CBN’s fresh hawkish disposition on market volatility.

The income gains highlighted above are likely to come at a slightly higher cost, according to analysts with the expectation that UBA operating expenses for 2022 to grow by 14.8% year on year to N320.4 billion.

The equity report noted that the projected operating cost increase could mirror the expected expansion in regulatory cost -typically a function of asset base- and domestic inflation-induced pressures on fuel, repairs & maintenance, contract services, etc. On this wise, analysts forecast the cost-to-income ratio at 63.0% for the financial year 2022 as against the 3-year mean of 62.6%.

UBA Makes Strategic Move to Enter United Arab Emirates

CardinalStone analysts expressed that they like UBA’s diversification strategy, which analysts think has been justified by the robust earnings contribution of its non-Nigerian arms with a mean of 62.1% in 2020 and 2021.

Analysts said the bank’s decision to expand its footprint beyond the African shores suggests management’s commitment to continued earnings de-risking and diversification in the near to medium term.

In particular, they noted that UBA Plc has secured the necessary regulatory approvals to establish operations in the economically active Dubai (UAE), which would increase its footprint to 24 countries.

“This move and broader attempts to permeate other parts of the Middle East are likely to keep operating income volatility relatively contained in the near-term”, according to the equity report. READ: UBA: Analysts See Higher Valuation Ahead, Raise Share

CardinalStone then keeps the BUY rating on UBA shares and raised the Pan African lender’s 12-month target price to N10.94 kobo from N10.10 kobo the firm’s analysts had previously set. Analysts hint that the key drivers of the positive outlook on the bank include the low-earnings volatility and the adequate capitalisation.

The group also has a low geographical concentration risk that may prove particularly useful considering Nigeria’s imminent elections, according to the equity report. UBA capital adequacy ratio printed at 24.5%, miles ahead of the regulatory threshold of 15.0%. #Analysts Raise UBA Earnings Projection after Approval to Operate in Dubai