Thisday||Analysts at Primera Africa, an investment banking services firm, have initiated research coverage on United Bank for Africa (UBA) Plc and have put a buy rating on the equity.
According to the report made available to THISDAY yesterday, the analysts also set a target price of N11.30 per share for the equity which closed at N8.50 yesterday. The valuation, the analysts explained, represents a 39 per cent upside to the UBA’s current market price.
Their reasons?
“Also, our expectations of an attractive full year 2013 dividend yield of 8.0 per cent at current prices suggest a total return of 46 per cent for investors. While UBA shares gained 102 per cent in 2013, we still see additional upside as investors have yet to fully appreciate the bank’s recovery from its non-performing loan(NPL) related losses in 2010/11 and stronger fundamentals. Currently, the bank is trading at a discount with multiples to 2014E book and earnings of 1.0x and 4.5x, respectively vs. our coverage Tier 1 names which trade at 6.4x book and 1.3x earnings. Our price target suggests that UBA’s fair value should be trading at a multiple of 2014E book of 1.4x and earnings of 6.2x,. The company posted NPL ratio of 2.2 per cent in 9M13 (lowest amongst the Tier 1 peers) a stark improvement from 8.8 per cent in 2010 during the height of the NPL crises. We guide for a slight increase in NPLs and cost of risk over our forecast period as the bank increases its loan book, and diversify loan mix into high yield customer segments,” they said.
The analysts added that UBA’s extensive Pan Africa footprint outside of Nigeria gives investors entry into the growth story of the continent particularly in key emerging markets such as Kenya, Ghana, Cote D’Ivoire, and Liberia.
Did you know UBA was in our stock pick for January because we thought it was undervalued as well? See link
