Over the past five years, UCAP’s earnings have grown significantly at an average of 23% per year. In FY 2021, earnings grew by 44.14% to N11.259 billion from N7.811 billion in 2020FY. This represents a robust net profit margin of 62% achieved on the back of revenue growth of 40.32% buoyed by impressive growth in fees and commission, which jumped by 78%.
However, higher overhead costs and impairment for credit losses on the backdrop of market and economic dynamics slowed down the company’s operating profit before tax, profit before tax and profit after tax in H1 2022. The company’s H1 2022 report card released to the investment public shows that gross earnings grew by 33% and 50.43% sequentially to N9.112 billion from N4.437 billion in H1 2021. But due to higher year-on and successive growth in personnel, other operating expenses and impairment of credit losses, operating profit before tax, profit before taxes and net profit margin grew by 35%, 40% and 41% respectively.
For instance impairment on credit, losses grew year-on by 14% and sequentially by 222% to N1.009 billion from N881 million in H1 2021 and N454 million in December 2021. The company’s earnings for the H1 2022 stood at N4.437 billion from N3.142 billion in H1 2021, which is 39.41% of 2021FY earnings, a reflection that the company is behind earnings forecast based on 2021FY performance.
Despite that setback, United Capital Plc has been able to maintain consistent and impressive margins, giving rise to impressive earnings per share growth. UCAP’s current net profit margins at 68.7% are higher than last year’s 60.8%. Earnings per share grew by 40.95% to N1.48 in H1 2022 from N1.05 in H1 2021, which is 79% of 2021FY earnings per share, which grew by 45% to N1.88 from N1.30 in 2020.
UCAP has a solid track record with an adequate balance sheet with on-line balance sheet size of N531.791 billion as at June 30, 2022; retained earnings constituting just 4.5% and share premium just 0.1%. The company’s retained earnings dropped to N24.096 billion in H1 2022 from N28.661 in H1 2021 due to the N9 billion dividend payments for the 2021FY.
Compelling Investment Case?
United Capital Plc is a leading African financial and investment services group providing bespoke value-added services such as investment banking, asset management, trusteeship, securities and insurance. UCAP has been listed on the NGX since January 13th 2013.
The company has 6,000,000 shares outstanding; with 73% of the shares outstanding owned by the public, indicating that UCAP is in compliance with NGX 20% public float requirement. Free float represents the portion of shares of a company that are in the hands of public investors as opposed to locked-in shares held by promoters, company officers or controlling-interest investors. Stocks with smaller floats tend to be more volatile than those with larger floats.
To add to the company’s market liquidity is the trading volume. United Capital Plc is the 23rd most traded stock on the NGX over the past three months (May 13 – Aug 12, 2022); UCAP traded a total volume of 170 million shares valued at N2.14 billion; representing an average of 1.89 million shares per day, making it a liquid stock. This is good. Investors should be comfortable as they can quickly and efficiently buy or sell the stock.
In terms of capital gain, though UCAP is not among the top 20 YtD gainers on the NGX, the company’s YtD capital gain performance is higher than the NGXASI and NGX30, which have gained 15.7% and 4.31% respectively. UCAP has gained 25.25% YtD ranking it 27th on the NGX in terms of year-to-date performance. It started the year with a share price of N9.90 and closed trading on Friday, August 12, 2022, at N12.40 per share, recording a 1.20% drop from its previous closing price of N12.55 of (11/8/22), but WtD change of +1.22%. The NGX top 5 YtD gainers are; Multiverse, (+1,025.00%); Wema Bank, (+397.22%); Meyer, (+393.48%); Academy, (+326.00%) and Seplat, (+120.08%).
Another income stream from stock investment is dividends. United Capital has been paying dividends for less than 10 years and during this time, payments have been volatile as dividend payment has had an annual drop of over 20%. In FY 2021, the company paid a dividend of N1.50 kobo per ordinary share of 50kobo each, amounting to N9 billion, to shareholders whose names appeared on the Register of Members at the close of business on March 9, 2022. This represents a pay-out ratio of 79.94% and dividend yield of 12.10%. The company’s dividend yield is in the top 25% and higher than the bottom 25% of dividend payers in the NG Market.
Another metric to consider is earnings per share. EPS is one of the indicators investors could use to pick stocks, but comparing it in absolute terms may not have much meaning to investors, because ordinarily investors do not have access to the earnings. EPS is compared with the share price to determine the value of earnings and how investors feel about future growth. In H1 2022, UCAP recorded earnings per share of N1.48; a growth of 41% compared to H1 2021, while in 2021F, EPS grew by 45% to N1.88 from N1.30 in 2020FY. The 2021 EPS vis-à-vis the current share price represents earnings yield of 15.16% and price to earnings (PE) ratio (TTM) of 6.6x. At this P/E ratio and earning yields, compared to the African Capital Markets Industry average P/E ratio of 9.5x, NGX market P/E ratio of 8x and FG 10-year bond yield (+12.686%), UCAP is priced cheaper and considered undervalued.
Outlook
- Overhead and impairment costs are expected to exert pressures on the company’s mid and bottom lines due to rising inflation, energy crisis, equity risk, exchange rate risk, etc. Already, overhead and impairment costs growth is sequentially higher, while investment income and other income growth is sequentially lower, an indication that 2022FY earnings might fall below forecast/expectation.
- The company recorded an outstanding return on equity of 47.32%, but investors should note that this metric is skewed due to their high level of debt. Though the company’s debt is well covered by operating cash flow; its debt-to-equity ratio has increased from 277.2% to 333.8% over the past 5 year.
- Notwithstanding, over the years, UCAP has consistently recorded impressive income growth and margins, which are unlikely to contract to below tolerable threshold in H2 2022, provided the company explores ways to diversify and fudge market risks, creating bespoke business opportunities within the operating environment.
I can not thank you enough for all you have made available about the activities of UCAP PLC. I am encouraged to increase my investment in UCAP PLC.