UBA Projected to Grow Third Quarter EPS by at Least 6.74% QoQ

Coy: United Bank For Africa Plc (UBA)

Rating: Buy

Current Market Price: N8.25

Year High: N13.50

Year Low: N7.00

Fair Value: N19.70

Conservative Expected Q3-EPS: N1.90

By: Jeariogbe Tunde Segun (Equity Analyst)

Introduction

The report observed the half year financial performance of United Bank for Africa (UBA),
But valuation was achieved through full year performances, from where projections were made and appropriate techniques adopted.
We maintained that analyst influence might be reflected in the valuation and projections accordingly
The next financial statistics currently awaited by investors from the financial institution is the nine months performance indices
History revealed that the bank usually released its third quarter earnings at the second week of October. For example, released dates for the past three financial years are 16^th, 11^th, and 15^th October for 2017, 2016 and 2015 respectively
Standing upon this fact, we expect same within 8^th to 19^th October, 2018
Please note that interim cash dividend trend had remained same (20k/share) for the past three years, although slight variations were noticed in the payout ratio, we are of the opinion that such variations are negligible

Company Figures

Gross Earnings for the half year improved over the corresponding year by 15.80% as the figure moved from N222.71 billion to N257.91 billion
Interest Income reported stood above that of similar period of 2017 by 20.87%; standing at N187.29 billion from N154.95 billion
Interest Expenses increased at higher momentum compared to increase rate in income/ gross earnings. It moved from N53.57 billion to N76.21 billion difference between the two figures is 42.26%
Having considered all expenses and incomes, N58.14 billion was reported as Profit before Tax for the period, this is only 1.06% above the N57.53 billion reported in the same period of 2017
After deducting income tax expense, the financial institution reported N43.79 billion as the profit for the period as against the N42.33 billion earned in 2017 half year financial activities. In other words, the profit only improved by 3.43%.
Total Comprehensive Income for the period stood at 42.72% below what was reported in 2017 half year financial activities. A total of N30.48 billion is currently reported as against N53.21 billion
Retained Earnings grew to N165.71 billion from N149.46 billion, this is 10.87% improvement within the two periods under comparison
The total Assets of the financial institution is currently valued at N4.26 trillion after enjoying improvement of only 15.65% over the period
Meanwhile, Total Liabilities for the period was estimated at N3.77 trillion as against N3.20 trill in 2017
Total Deposits received for the period was reportedly N3.03 trillion compared to the N2.58 trillion in 2017. Difference between these figures is 17.42%
Meanwhile, Loan and Advances to customers dropped marginally against the previous year figure. According to the released document, Loan and Advances is currently N1.55 trillion as against N1.57 trillion last year
Nets Assets on the other hand improved by marginal 2.72% over the period under consideration in this report

Volatility Ratios

Estimated beta value of UBA stood above both the market and industrial average beta value. This confirmed the volatility/patronage of its shares on the floor of the exchange
Although almost irrelevant since we analyze a financial institution whose major business is to collect deposit (mostly reported under liability) we estimated Debt to Equity ratio as 104.21% well above the industrial average of 58.79%

Profitability Ratios

Interest Expense to Gross Earnings is presently estimated at 29.55% this is 22.85% above the 24.06% estimated in 2017 half year result
PBT margin stood at 22.54% as against 25.83% last year, this is 12.73% drop
Similarly, Profit margin dropped against last year. We have estimated 16.98% margin from Gross Earnings as against the previous estimate of 19.01%
Return on Average Equity is now 8.82% compared to the 8.76% returns achieved in the first six months of 2017
Return on Average Assets differs by 10.56%, moving from 1.15% to 1.03%

Efficiency Ratio

Gross Earnings to Total Assets is estimated is flat within the two periods compared
Meanwhile, Gross Earnings to Equity is now 51.97% as against the 46.10% estimated from 2017 half year financial statistics
Financial Leverage is 8.60x as against 7.64x, this is an estimate of the number of times the total assets replicates the equity, in other words the ratio got better
It was also established that 51.13% of the Total Deposit was given out as Loan and Advances during the period under estimate, this is 15.81% lower than the 60.73% given out during the first six months of 2017
Meanwhile, Loan and Advances is 36.41% of the Total Assets this is 14.51% lower than the 42.59% of last half year. This shows a controlled/reduced risk compared to 2017

Investment Ratios

Just as in the company report above, since shares outstanding remained constant during the two periods under consideration, the estimated amount earned per units of UBA shares is N1.28, this is 3.43% above the N1.24 earned last year
PE/Ratio for the period is 1.57x as against 1.96x estimated last year.
As we speak the Book Value of Fidelity Bank is N14.51 fairly same as N14.13 last year. This confirmed that the company is currently undervalued.
Also confirming this fact is the Price to Book Value that is estimated below unity, proving the low price against the book value
Operating Expenses for the period is currently 29.55%, this is 22.85% above the 24.06% of 2017 half year financials.

Valuation

As noted above, our valuation explored few full years’ financials prior, projected appropriately based on our growth expectations. Thus, we have placed each units of UBA shares price at N19.70. Please note that our conservative earnings expectation for the expected nine months ended September 30th, 2018 is N1.90. This is about 6.74% growth above the previous third quarter earnings (N1.78) and 48.43% improvement from the half year earnings.