Background
United Bank for Africa plc (UBA) was incorporated on February 23, 1961, and was the first of the international banks operating in Nigeria at the time to be registered under Nigerian Law.
UBA provides corporate, commercial, consumer and investment banking, and investment management services. Through a joint venture, UBA offers life insurance. The bank operates in Africa, and has offices in the United States, the Cayman Islands, and the United Kingdom.
The bank has 32.98 billion shares outstanding with shareholders fund standing at N238.73 billion, as of March 31, 2014.
Financial performance for 1Q14
UBA, the fifth largest bank by market value, released its first quarter 2014 financial results which showed the bank’s inability to translate top-line impressive performance into bottom-line growth.
The bank recorded a high gross earnings growth in line with expectations; however, its bottom-line took a hit from increase in operating expenses associated with unfavourable economic environment.
For the three months through March 2014, the bank grew gross earnings by 8.15 percent y/y to N68.07 billion from N62.94 billion 1Q 2014. Profit before tax (PBT) in the review period shrank by 21.05 percent y/y to N13.54 billion compared with N17.15 billion in 1Q13.
A 31.92 percent savings in income tax in the review period couldn’t salvage after tax profits, as it tumbled by 19.12 percent y/y to N12.58 billion in 1Q14 from N15.63 billion in 1Q13. Earnings per share (EPS) fell by 18.27 to 161k in 1Q2014 from 197k in 1Q2013.
The slump in profits could be attributable to a surge in operating expenses by 15.09 percent to N31.42 billion in 1M14 as against N27.30 billion 1M13.
With almost half of the Nigeria’s more than 170 million people without access to finance, UBA has mammoth opportunity to continue growing earnings and also growing interest income.
The Return on Average Equity (ROaE) slid to 5.27 percent from 6.83 percent for 1Q13, while Return on Average Assets (ROaA) declined to 0.48 percent from 0.58 percent for 1Q13 2013.
Further analysis by BusinessDay reveals that the bank spent 46.15 percent of its earnings on operating expenses in 1Q14, an increase from 43.37 percent in 1Q13.
Interest income grew by 12.48 percent y/y to N49.91 billion in Q1’14 compared with N44.37 billion in Q1’13, while interest expense spiked by 19.93 percent y/y to N20.64 billion Q1’14.
Net interest income in the review period climbed by a single digit 7.80 percent y/y to N29.27 billion in 1M14 from N37.15 billion in 1M13.
The astronomical costs have also pressured net margin, a gauge for measuring profitability and efficiency, which fell to 18.48 percent in the review period from 24.72 percent in 1Q14.
Loans and advances to customers were up by 42.30 percent y/y to N1.01 trillion in 1M14 compared with N963.87 billion in 1M13.
Loans-to-deposits ratio increased to 47.8 percent in first quarter 2014, from 43.4 percent same period of the prior year (1Q13).
Deposits from customers climbed slightly by 1.81 percent to N2.18 trillion in 1Q14 as against N2.22 trillion 1Q13.
UBA’s total assets in the review period also increased marginally by 1.13 percent to N2.64 trillion in Q1 2014, as against to N2.61 trillion in Q1 2013.
Share performance and outlook
The bank’s share price closed trading on the floor of the exchange at N7.05 on April 18, 2014, and market capitalisation was N232.51 billion on the same day.
Current price earnings ratio and estimated price earnings ratio were 4.63x and 4.26x, respectively, according to Bloomberg data.
Data from the website further reveals that price-to-book ratio and price-to-sales were 1.21x and 0.98x, respectively.
With loan penetration in West Africa increasing by 5 percent points over the past 10 years, the potential for assets growth in Nigeria is probably much larger than in most parts of the continent, according to Exotic Equities, an investment firm based in London.
BALA AUGIE
