As UBA Remains Resilient


With a 21 per cent growth in profit after tax in the first quarter ended March 31, 2019, amidst a challenging operating environment, the United Bank for Africa Plc has shown its ability to deliver impressive returns going forward, writes Goddy Egene

When shareholders of pan-African financial, United Bank for Africa (UBA) Plc met last month at the annual general meeting, they were full of commendation for the board and management.

According to them, despite the challenging environment, the bank has remained resilient and deliver significant returns to all stakeholders. They also stressed that the current management was fulfilling the vision of the founders and past leaders of UBA in creating a truly pan-African bank.

For instance, one of the shareholders, Dr. Faruk Umar, said: “I want to specially commend the management of UBA under the leadership of the Group Managing Director/CEO, Kennedy Uzoka, for a selfless commitment and hard-work towards building an enduring institution that we and future generations can be proud of.

“More so, I am impressed by the tenacity of this management in delivering on the vision of shareholders to create a leading and dominant pan-African financial service institution with global reputation and culture. Whilst it may have taken us some time to appreciate the cutting-edge vision of Chairman, Mr. Tony Elumelu, in expanding our group’s operation to Africa, we are today excited by the performance and contribution of these operations to our Group’s earnings.”

The shareholders also tasked the board and management to work harder and deliver higher dividend and the bank promised not to disappoint the shareholders at the end of the current financial year.
Therefore, given the first quarter (Q1) financial performance of UBA, which showed growth in performance indicators, the shareholders would definitely have course to celebrate at the end of the year.

First Quarter Financial Results
United Bank for Africa Plc grew its profit after tax (PAT) in Q1 ended March 31, by 21 per cent to N28.665 billion up from N23.736 billion in the corresponding period of 2018.
The profit was realised from gross earnings of N131.7 billion, showing a an increase of 10.3 per cent compared with N119.4 billion in 2018. Operating income rose 7.9 per cent to N83.7 billion from N77.6 billion. The bank was able to moderate the operating expenses rise by 4.6 per cent from N49.7 billion to N51.9 billion, making it to end the period with a profit before tax of N30.157 billion in 2019, as against N26.555 billion in 2018. PAT grew faster by 21 per cent to hit N28.665 billion, compared with N23.736 billion.
A look at the balance sheet showed that customer confidence in the brand is rising as deposits grew by 5.4 per cent from N3.35 trillion as at December 2018 to N3.53 trillion at the end of Q1 in 2019. Shareholders’ funds appreciated by 15 per cent to N543.3 billion, while total assets stood at N5.11 trillion , up from N4.87 trillion as at December 2018.

Bank explains performance
Commenting on the result, the Group Managing Director/CEO, UBA Plc, Kennedy Uzoka, said: “This impressive set of Q1 result is encouraging and reinforces the resilience of our business model and capacity to sustainably grow earnings, even in a slow economic growth environment. Notwithstanding the election season in Nigeria and Senegal, two of our high impact markets, we grew fees and commission income by double digits. Reflecting our enhanced customer service and digital channels, we recorded strong accretion of remittance, transaction banking and fund transfer fees, which grew 73 per cent, 35 per cent and 30 per cent respectively. Given our commitment to diligent execution of cost efficiency initiatives, operating expenses grew barely 4.6 per cent, thus improving cost-to-income ratio by 200bps. Growing profit before tax by 13.6 per cent to N30.2 billion and recording N28.7 billion PAT, I am particularly pleased by the annualised return on average equity of 22 per cernt, as this reinforce the strong upside to our performance over the medium term, as we extract the benefits of our digital strategies and balance sheet efficiency initiatives.

We are constructive on the macros of our countries of operation, especially as inflation outlook remains benign and local currencies are stabilising across most of our markets. As broad macro risks abate, especially in Nigeria and Senegal where elections were concluded in the first quarter of the year, we look forward to growing our loan portfolio and overall balance sheet. Nonetheless, we will maintain a low to moderate risk profile and sustain our prudent risk management practice, as profitable growth and asset quality remain our priority. I am excited the 5.4 per cent year-to-date (YTD) growth in deposit, as it puts us on track to further gain market share this year. More so, improved contribution from savings and current account deposits (CASA), which now represent some 79 per cent of customer deposits, is a positive fundamental that should support our NIM and ROAE upside over the medium term. It is our commitment to sustain this strong start through the year, as we look forward to delivering stronger returns to our esteemed shareholders in 2019.”

Speaking in the same vein, the Group Chief Financial Officer, Ugo Nwaghodoh said: “We have a strong start to the year and are optimistic on sustaining this exciting performance through the year. With improving deposit mix, positive trends in interest and non-interest income as well as improving cost profile, we are upbeat on the quarters ahead, with expectation of outperforming our 18 per cent ROAE target for the year. With increased focus on our offshore operations (Africa ex-Nigeria, United Kingdom and United States), which contributed half of the earnings in 2019Q1, we are confident on the strong prospect for earnings growth, particularly as we are better positioned to gain market share in Nigeria and elsewhere in Africa. Furthermore, our strong capital adequacy ratio of 24 per cent and 50 per cent average liquidity ratio provide headroom for growth, even in BASEL III environment. Thus, we are excited to leverage our unique fundamentals in profitably growing our balance sheet and sustainably creating wealth for our esteemed shareholders.”

Analysts assessment
Assessing the Q1 result of UBA, analysts at FBNQuest maintained their rating on UBA and increased the bank’s price target by eight per cent to N13.9, following the performance, which they said surprised positively relative to their forecasts. According to them, the upward revision to their price target was driven by an eight per cent increase to their 2019 estimated (E) earnings per share (EPS) forecast.

“On the back of the upgrades to our forecasts, we now expect the bank to deliver a 2019E ROAE of 19 per cent, 100bps higher than management’s 18 per cent guidance for the year. We believe that the bank’s current valuation level (2019 P/B multiple of 0.4x or a 41 per cent discount to the sector’s 0.7x multiple) look compelling when compared with peers and justifies a more positive view on the stock. The discount is also unjustified when comparing our forecast ROAE of 17.3 per cent in 2020E versus the 18.9 per cent for the sector,” they said.
They explained that following the declassification of its 9mobile exposure (from stage 3 to stage 2 loans), UBA’s NPL ratio improved by 116bp to 5.3 per cent.

“Its loan book was flattish quarter on quarter (q/q). However, following the conclusion of the general elections in Nigeria in Q1 2019 and the dissipation of associated political risks, management is more positive on the bank’s loan growth prospects for second half (H2) 2019. In addition, the bank’s financial soundness indicators, mainly capital adequacy, loan-to-deposits and liquidity ratios which stand at 24 per cent, 48 per cent and 50 per cent respectively as at the end of Q1 2019 are amongst the best in the sector. At current levels, we see an upside potential 107 per cent in the shares,” FBN Quest added.

An assured future
Meanwhile, Uzoka has said despite the fact politics will be a key event that will shape the business environment in 2019, UBA’s resilient business model and governance structure, would shield its earnings and balance sheet quality from the volatilities that may arise from.
“There will be general elections in some of our markets like Nigeria, Senegal and Mozambique, as well as the parliamentary elections coming up in Benin and Tchad. Whilst uncertainties around future fiscal policies and broader macro events may dominate the business environment, we remain optimistic about these economies and more importantly, we are confident of our resilient business model and governance structure, which have overtime relatively shielded our earnings and balance sheet quality from the volatilities that may arise from these external events. Interestingly, post-election, we expect new economic reforms that will further open these markets for new business opportunities as the increasing demand from electorates and maturing democracy will accelerate implementation of requisite reforms that are pertinent for economic progress,” he said.

According to him, over the past few years, the dynamics of the industry has been quite exciting, but they anticipate the changes will be faster in the next couple of years and they therefore, positioning the group to be a key game changer in this evolution.

“We remain committed to sustaining our lead, particularly as the innovative and preferred customerfocused bank that supports businesses and individuals towards achieving their financial aspirations seamlessly. We have more than ever, invested in our systems and people to further optimise our product and service delivery to customers, as excellent service delivery remains the cardinal strategy in our journey to sustainable leadership. I am elated by the re-energised culture of execution and efficiency across the group at all levels and we have put in place the requisite people management practice to deepen positive attitudes and attendant pay-offs in productivity,” he said.

The GMD assured all stakeholders that “we will continue to deepen our play in target growth sectors that are benefactors of the government’s reforms and policies whilst also banking new opportunities. This will ensure your bank stays ahead of the curve on all performance metrics, even as we fulfil our aspirations of powering inclusive growth and development of the economies, where we operate.”