UBA resets for optimal performance, to beat 2019 estimates. The United Bank for Africa Plc, a Pan-African financial supermarket could buck growth trend with its new diversification and repositioning strategy for global leadership.
In the third quarter of 2019, growth across key performance indicators like earnings per share which came at 33% year on year increase was strong.
Key guidance for 2019
UBA (www.ubagroup) estimated to settle for net interest margin of 6% though it had achieved 6.2% a year before. As at the third quarter, the group net interest margin closed at 6.1%.
The group did set 60% cost to income ratio (CIR) after impairment charge has been taken care of. In the 9-month result, its CIR was 60.8% which means there is still chance to achieve this by year end.
Non-performing loans ratio pitched at 5.7% in the third quarter of 2019, the group plans to close the year 5% – the exact level required by the apex bank.
Despite the fact that gross loan grew at 5.4% in 2018, UBA set ambitious loan growth of 18% for 2019. As at the third quarter, the group has expanded loan book by 13.3%.
On total deposit growth, UBA did 0.5% at the end of third quarter though it estimated to hit 8% full year growth.
Its aggressive total deposits mobilization in 2018 resulted to 22.5% year on year growth.
On investors metric, UBA planned to increase return on average equity to 18% in 2019, but by the end of 9-months period, it has outperformed this metric by 2.6%.
The group achieved its 2.2% return on average assets target for 2019 in the third quarter of the year.
Banking sector’s changing narrative
The narrative in the banking sector is fast changing, and operators are expected to adjust their corporate strategies. UBA seems to be doing just that.
Though, caught in-between fire and ice in the recent time for hiring, firing and promoting members of staff, UBA’s decision may not be unconnected with its new Pan-Africa strategy and competition.
The costs and the benefits of its early year move would be seen in the first quarter 2020 results. Analysts are however optimistic that its fundamentals would be positively affected.
Regulatory risk has become steeper. The apex bank stance on deposit money bank is tightening.
This has ushered in rivalry as banks are strongly competing for businesses and customers wallets.
Speaking with some equity analysts covering United Bank for Africa Plc, some said they have seen the ongoing magical earnings drive.
“Enough free lunch has been taken away by the Central Bank of Nigeria with its directives”, MarketForces gathered from equity analysts.
At current price of N8.35, the group stock has gained about 15.97% in January, and charts suggest it may buck trend further.
Earnings per share pushed forth strongly in the third quarter of 2019 result, surged 34.88% year on year. Analysts expect this strong earnings position to impact positively on investors return.
With the early bullish stance on the local after Santa Claus rally, it looks like buy and hold investors would be adequately rewarded down the year as earnings season is few month away.
In the third quarter of 2019
UBA Plc gross earnings berthed at N428.2 billion at the end of 9 months of its financial year 2019.
This represents 14.25% year on year uptick from N374.80 billion the group amassed in the comparable period in 2018.
That means on a three years scale, the group was able to boost topline by 13% on the average per annum. It had reported a gross revenue of N333.9 billion in its 9 months result in 2017.
The topline was grossly supported by increased revenue from interest earnings assets in the period.
It was noted that interest income surged 10.8% year on year to N297.9 billion as against N268.9 billion achieved in the comparable period in 2018.
Following similar trend, interest expenses also jerked up 17.5% from N118.2 billion to N139 billion.
This left the group net interest income at N158.9 billion from N150.7 billion in the comparable period.
The impact of this self-balance math was a surge in net margin from 17.3% to 20.1% at the end of the period.
In its 9-months scorecard in 2019, from aggregate earnings, non-interest income accounted for 30.4% of the sum while its interest earnings assets contributed 69.6% in the period.
Again, non-interest related income grew 22%, it closed the period at N107.6 billion compare to N88.2 billion a year earlier.
In the period, the group operating income jumped up by 11.6% from N238.36 billion in 9 months 2018 to N265.99 billion in the same period of 2019.
In the period, operating expenses also expanded from N149.09 billion in 9 months 2018 to N161.62 billion in 9 months of 2019, representing a rise of 8.4%.
The group landed a profit before tax of N98.2 billion in the period. That translated to an average of 11% annual growth over the three years space.
The boutique financial services super market did N78.3 billion in comparable period in 2017, then N79.1 billion in 2018.
On the same scale, UBA grew total assets by 12% per annum on the average between 9 months of the financial year 2017 and 2019.
In what looks like coordinated move in the banking sector at the period, UBA financial assets accounted for significant chunk of the group total assets portfolio at 30.1% at the end of the third quarter in 2019.
Its loans book stood at N1.99 trillion, from N1.73 trillion at the beginning of the year.
UBA favoured Oil and Gas, Manufacturing and general commerce deals. UBA group non-performing loan ratio balled at 5.7% in the third quarter of 2019.
That means for every N100 invested in loan to customers, some N5.7 kobo could be busted down the line.
Though, the management had provided 90% coverage for this as it pursues debt recovery. According to estimate, the group seeks to achieve 5% NPL ratio for financial year 2019.
The down side to this concentration is that these three sector accounted for more than 51% of the loan book. Then, UBA largest non-performing loans exposure was from Oil and Gas clients.
Now, its equity contribution to total assets financing is picking up again. It had hit low at 10.3% at the end of financial year 2018.
Though it was 13% a year earlier but rested at 11% at the end of the third quarter of financial year 2019.
Its average liquidity ratio in the period was strong, pitched at 47% as against 30% benchmark set by the apex bank. The group was highly liquid also in 2018 when it reported 50% liquidity ratio.
At the group level, analysts estimated that total assets would cross N5 trillion market as its audited statement for the financial year 2019 would be released.
UBA has about 10% of the market share in the banking sector, the third largest by total assets and strong earnings diversification.
Some analysts believe that for banks to survive the recent increase regulatory demand, its earnings concentration must be well diversified.
In the first half of 2019, UBA has more than a thousand branches and customers touch points in addition to 2550 automated teller machines.
In its earnings diversification quest targeted to reduce concentration risk, UBA provides bouquet of holistic financial solutions to regional businesses.
Analysts are of the view that the group’s increase African retail penetration provides headroom for lower cost of funds.
At the balance sheet level, the group expanded its size while maintaining control of assets quality. In the period, group shareholders’ investment in the bank increased by 10.5% to close at N555.53 billion.