UBA Plc. (9 months ended June 2014)
Revenue inches higher as drivers reverse
- United Bank for Africa Plc. (UBA) reported 12% YoY growth (6M 14: +10%YoY) in gross earnings to N205.8bn for the 9 months to September 2014. PBT was 2% lower YoY (6M 14: -13%YoY) at N42.5bn while PAT declined 10% YoY to N33.6bn (6M 14: +20%YoY).
- Q3 14 gross earnings was flat (+1%) QoQ at N69.4bn, 2% above our estimates. Interest income improved, rising 5% QoQ to N50.9bn but was not as strong as we expected, falling 7% short of our estimates. Much of the gains was from volume growth as earnings assets expanded 7% on aggregate driven by loans (+10% to N1trn) and securities (+6% to N731bn). Nonetheless, the accretion was tempered by a 50bps QoQ dip in asset yields. On the flip side, non-interest revenue (NIR) declined but not as much as we expected, falling 7% QoQ to N19.4bn, 18% ahead of our estimates. The outperformance suggests to us that CBN’s restoration of charges on ATM withdrawals helped cushion expected industry-wide pressures on NIR. Regardless, fee income contracted 14% QoQ to N12bn with trading gains (+25% QoQ) providing some offset.
But costs expand more markedly, dampening profits
- Matching asset growth, deposit-driven 7% expansion in funding base pushed interest expense 6% higher QoQ to N24.1bn, 13% ahead of our estimates. Buttressing the wholly volume driven nature of the rise, annualized WACF shaved off 10bps to 3.9%.
- In addition, operating expenses rose 8% QoQ to N32.2bn, in line with our estimates. Whilst personnel expenses fell 18% QoQ to N12.2bn, other opex jumped 38% to N18.6bn with rise in the latter reflecting both investments in platform as well as greater regulatory costs. Annualised CIR came in at 67.5%, 50bps ahead of FY14 estimate.
- On a positive note, after tripling QoQ in Q2 14, impairment charges collapsed 8% QoQ in Q3 14 to ~N300mn, 90% behind our estimates. This helped offset some of the cost growth but was too small to avert damage to bottom-line. Cost of risk improved 10bps from 6M 14 to 0.3% and remains well short of our 1% FY14 estimate.
- Largely reflecting higher interest expense and opex, Q3 14 PBT declined 11% QoQ to N13.7bn but was ahead of our estimates by a similar magnitude mainly on higher expected impairments. A 43% lower tax charge QoQ helped moderate feed-through to bottom-line with Q3 14 PAT 5% higher QoQ and 2% ahead of our estimates. Overall, 9M 14 PBT margin of 21% is flat from 6M but 300bps behind YoY while PAT margin of 16% is 100bps lower than 6M 14 but 400bps behind YoY.
Significant price pressures lead to rating upgrade
- The resumption of balance sheet expansion for UBA reinvigorates the potential for asset creation to meet expectations. Considering key line items are in line with projections, our revisions, and consequent changes to FVE, are likely to be mild. However, UBA has been one of the names most affected by recent market weakness and the significant cutback in prices make valuation discounts more compelling: current PE and P/Bv of 4x and 0.7x compare favourably with respective peer averages of 6x and 1x respectively. Based strictly on the upside opened up by the price contraction, our rating on UBA is likely to climb two notches to BUY.
Culled from ARM
