United Capital provided the first glimpse into the latest installment of the earnings season after it released its 2020 half-year results last week. The Investment Bank is the first to release its result this quarter.
The company reported a 37% growth in revenues from N3.24billion same period in 2019 to N4.45 billion in the first half of 2020. The company’s pre-tax profits also rose 14% from N1.99 billion to N2.27 billion in the first half of the year. The company’s earnings per share also rose from 28 kobo per share to 32 kobo per share.
The result provides a glimmer into how the financial services sector could make money in an increasingly changing financial landscape ravaged by the COVID-19 pandemic. The company’s positive result benefited from a significant rise in fees and commission income and net interest income. Fees and commission income refers to money earned from helping companies raise funds or structure corporate deals. During the quarter, it earned N800 million (2020 Q1: N568 million) and NN790 million (2020 Q1N589 million) in commission and fees and interest income respectively. Combined N1.59 billion was earned, dwarfing the N1.15 billion earned in the first quarter.
The second quarter of 2020 included the month of April and May that saw the economies of Lagos and the FCT shutdown for the pandemic. However, it was also a quarter that witnessed significant fundraising activities such as bond listing, right issues, and other corporate deals. United Capital also issued N10 billion from its N30 billion medium-term debt program. The company claims its bond was also oversubscribed by 24%.
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Despite its impressive results, the company also recognizes the impact of COVID-19 on its results. “The COVID-19 pandemic has lasted than envisaged and caused greater speculations of global recession and slower global recovery from the pandemic. The Nigerian economy has been greatly affected by the pandemic as seen in the increasing depreciation of the exchange rate, inflation rate, and other economic indicators. As we stated at the release of our last quarter result, our business was not immune to these challenges; however, the Group was able to endure the challenges – Thanks to the well-articulated and diligent implementation of our plans set out last year.”
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The Nigerian Stock market has lost every week since June and is down 0.78% year to date as investors wait eagerly for the release of results. Perhaps the most awaited results will be that of commercial banks as it will provide investors with a glimmer into the state of the economy. Bank results will also be closely watched for income from fees and commissions considering that most companies may have defaulted on interest on loans. This becomes even more critical when you consider the spate of impairments that may be incurred this quarter in line with financial regulations.
United Capital reported a N475 million about impairment charge taken in compliance with IFRS 9, the financial standard that requires financial services firms to take provisions when there are signs that the value of its financial assets may have weakened. The N475 million impairment recorded in this quarter is about 19% of total revenues and 33% of expenses. The impact is significant and contributed significantly to its rise in its cost to income ratio as the company conforms. “The cost-to-income ratio rose by 10.35 percentage points due to the sharp rise of 363.79% in impairment allowance. This increased cost is in compliance with IFRS 9 that requires some financial assets be measured at amortized costs.”
The same fate could likely befall several banks and if it does, the stock market could be in for another period of massive sell-offs.