Primera Africa Securities Limited, a member of the Nigerian Stock Exchange (NSE), initiated coverage on UBA plc with a “buy” rating and target price of N11.30.
The analysts said this valuation represented a 39 percent upside to UBA’s current market levels. “Also, our expectations of an attractive FY13E dividend yield of 8 percent at current prices suggest a total return of 46 percent for investors,” the analysts said in their equity research titled “United Bank for Africa plc: Fully recovered, but under the radar. Executing on strategy.”
According to them, UBA’s share price gained 102 percent in 2013 (versus NSE’s ASI 47.2%) as investors saw attractive entry points. “We still see more room for price appreciation in 2014. While regulatory headwinds still persist, we see UBA successfully navigating through to drive earnings growth. Presently, investors are going short on banking stocks (and the overall market) in reaction to the increase in CRR and the US Fed commencement of tapering. Currently, UBA is down 8.3 percent year-to-date (ytd) to N8.16. At these levels, we see a buying opportunity and a chance for investors to benefit from the upside.”
Primera Africa further stated: “While UBA shares gained 102 percent in 2013, we still see additional upside as investors have yet to fully appreciate the bank’s recovery from its 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, versus our coverage Tier 1 names which trade at 6.4x book and 1.3x earnings.
“Amid the regulatory headwinds, we expect UBA to continue to leverage its balance sheet and sweat its assets to drive earnings growth. Key to this objective will be continued risk asset creation, cheap deposit mobilisation, and increased monetisation of its ex-Nigeria distribution platform. While we expect UBA to post positive 20percent Return-on-Equity (ROE) (above its Cost-of-Equity (COE), its relatively high leverage (versus peers) suggest the need to raise Tier 1 capital.”
Their positive outlook on UBA is largely driven by sustained risk asset creation, re-pricing of interest earning assets, increased monetisation of ex-Nigeria operations across 18 African countries, and continued mobilisation of cheap deposits, the analysts said.
By: Iheanyi Nwachukwu
