Coy: UNION BANK PLC. (UBN)
Rating: Hold
Current Market Price: N6.00
NPL RATIO (Q4-2019):5.84 %
LOAN to DEBT Ratio:62.13 %
Year High: N7.60
Year Low: N5.70
Fair Value: N3.31
By: Jeariogbe Tunde Segun (Equity Analyst)
Introduction
- This report on Union Bank of Nigerian Plc, observed the full year financial numbers released for the year ended 31st December, 2019. We have compared the result to figures representing similar year in 2018 to establish growth, perform projections and valuation analysis
- For the first time in a long time the company reported a dividend of N0.25 having rebuilt its reserve to positivity
- The result is a marginal improvement in both top and bottom line, with outstanding improvement in the total comprehensive income for the year against the comparable year
- The improvement in the total comprehensive income was boosted by Fair value gains/(losses) on debt instruments
| UNION BANK | |
| Bourse | Nigerian Stock Exchange |
| Code Name | UBN |
| Sector | FINANCIAL SERVICES |
| Market Classification | MAIN BOARD |
| Nature of Business | Commercial Banking |
| Date of Incorporation | September 9th 1996 |
| Date Listed | July 20th 1990 |
| End of Accounting Year | 31st December |
| Website | www.gtbank.com |
| Registrar | Datamax Registrars Limited |
| Auditor | PricewaterhouseCoopers |
| Share Price@Relsd (N) | 6.85 |
| Earnings per Share | 0.68 |
| Intrinsic Value(N) | 3.31 |
| Share Outstanding | 29,120,752,788 |
| Market Capitalisation | 199,477,156,598 |
Company figures
- Estimated Gross Earnings for the year stood at N166.54 billion, same as 14.45% above the N145.51 billion reported at the end of 2018 financial year
- Interest Income grew by 11.20% to stand at N117.07 billion against N105.28 billion in the corresponding year
- Interest Expenses is valued at N64.55 billion, a 20.24% growth over N53.68 billion stated in its 2018 financial numbers
- Interest Income inched up by 1.79% to stand at N53.52 billion versus N51.59 billion
- Operating Expenses was curtailed effectively as it only inched up by marginal 0.36% to stand at N63.28 billion against N63.06 billion
- Profit before Taxation is valued for N20.35 billion, this is 10.30% above the N18.45 billion achieved at the end of 2018 financial year
- Having accounted for tax expenses for the year, the management of Union Bank Plc achieved N19.87 billion as Profit for the period. The said profit is 9.85% above the corresponding year
| UNION BANK | |||
| Statement of Comprehensive Income | |||
| 2019(Mill) | 2018(Mill) | %CHG | |
| GROSS EARNINGS | 166,545 | 145,517 | 14.45 |
| INTEREST INCOME | 117,071 | 105,281 | 11.20 |
| INTEREST EXPENSES | 64,551 | 53,685 | 20.24 |
| NET INTEREST INCOME | 52,520 | 51,596 | 1.79 |
| OPEX | 63,289 | 63,062 | 0.36 |
| DEPRECIATION | 5,801 | 5,166 | 12.29 |
| AMORTISATION | 1,927 | 1,543 | 24.89 |
| PBT | 20,353 | 18,453 | 10.30 |
| TAX | 478 | 360 | 32.78 |
| PAT | 19,875 | 18,093 | 9.85 |
| TOTAL COMP INCOME | 27,571 | 15,362 | 79.48 |
| Statement of Financial Position | |||
| Total Assets | 1,872,231 | 1,463,858 | 27.90 |
| Total Liabilities | 1,619,889 | 1,238,226 | 30.82 |
| Net Assets | 252,342 | 225,632 | 11.84 |
| Retained Earnings | 21,437 | (44,380) | 148.30 |
| Total Deposits | 886,263 | 957,070 | 7.40 |
| Total Loans and Advances | 550,613 | 473,462 | 16.30 |
- Total Assets valuation for the year stood at N1.87 trillion, this is 27.90% higher than estimate at the end of 2018 financial year
- Total Liabilities on the other hand grew by 30.82% to stand at N1.61 trillion versus N1.23 trillion in similar year
- Net Assets appreciated above the comparable year estimate by 11.84% to stand at N252.34 billion as against N225.63 billion in 2018
- Retained Earnings exited the red region as it is now valued at N21.43 billion as against the negative reserve posted at the end of 2018 financial year
- Total Customers Deposits at the end of 2019 dipped by marginal 7.40% to stand at N886.26 billion versus N957.07 billion in 2018
- Total Loan and Advances on the other hand builds by 16.30% to stand at N550.61 billion against N473.46 billion
Dividend Details
- At the end of 2019 financial year, the management of Union Bank Plc proposed a final cash dividend of N0.25/share.
- The said dividend represents 36.80% of the earnings per share achieved through the year
- Meanwhile, comparing the dividend to the current market price of Union Bank shares when the result was made available to the investing public, the yield is 3.65%
| DIVIDEND INFORMATION | |||
| Tickers | 2019 | 2018 | %Chg |
| Latest Final Dividend | 0.25 | – | #DIV/0! |
| Total Dividend | 0.25 | – | 83.33 |
| Latest Dividend Yield | 3.65% | 0.00% | #DIV/0! |
Financial Strength/Solvency Ratios
- We have estimated the Debt Ratio at 0.87x same as in the prior year, in other words, Total Liabilities estimate for the period is same as 87% of Total Assets valuation. Please note that Total Deposits was added to the Liabilities figure used in the estimate
- We also ascertained that the Total Debt for the period can replicate Equity 6.42 times this is an improved position above the 5.49 times replicate estimated from in 2018
- Total Equity was estimated at 0.13% of the Asset Value at the end of the period, this is below the 13% estimated in 2018
- We have currently estimated a Beta value below the market Beta for Union Bank Plc shares. Please note that at 0.89 beta value, it is below the industrial average of 1.52.
| Financial Strength/Solvency Ratio | |||
| TICKERS | 2019 | 2018 | %CHG |
| Debt Ratio | 0.87 | 0.85 | 2.29 |
| Total Debt to Equity Ratio (MRQ) | 6.42 | 5.49 | 16.98 |
| Equity Ratio | 0.13 | 0.15 | 12.56 |
| TICKERS | UNION BANK | Industrial Average | %CHG |
| Beta Value | 0.89 | 1.52 | 41.45 |
| Provision Coverage Ratio | 2.30 | 1.76 | 31.01 |
Profitability Ratios
- Pre-Tax Margin stood at 12.22% up from the last estimate of 12.68% at the end of 2018 business session
- Interest Expense figure posted for the year is same as 38.76% of the Estimated Gross Earnings figure; this is a marginal improvement over the previously estimated 36.89%
- Return Achieved on Average Equity used through the year was estimated at 7.88% this is below the 8.02% return achieved in 2018 numbers
- See below table for detailed profitability ratios and comparison
| PROFITABILITY RATIOS | |||
| TICKERS | 2019 | 2018 | %CHG |
| PRE-TAX MARGIN | 12.22% | 12.68% | 3.63 |
| EFFECTIVE TAX RATE | 2.35% | 1.95% | 20.38 |
| IE TO GE | 38.76% | 36.89% | 5.06 |
| ROAE | 7.88% | 8.02% | 1.78 |
| ROAA | 1.06% | 1.24% | 14.11 |
Efficiency Ratios
- Operating Expenses is estimated to be 38.00% of the Gross Earnings Value estimate for the year, this is an improvement in efficiency when compared to the 43.34% estimated from 2018 financial statistics
- Similarly, Gross Earnings was estimated to be 8.90% of Total Assets, this is a 10.51% drop in efficiency when compared to estimate from the corresponding year
- Total Loan to Deposit Ratio achieved at the end of the year stood at 62.13% up from the 49.47% achieved in 2018. Please note that this is slightly below the CBN mandated 65% for all financial institutions
| EFFICIENCY RATIOS | |||
| 2019 | 2018 | ||
| OPEX TO GE | 38.00% | 43.34% | 12.31 |
| GE TO TA | 8.90% | 9.94% | 10.51 |
| LDR | 62.13% | 49.47% | 25.59 |
| Working Capital Ratio | 1.16 | 1.18 | 2.24 |
Investment/Valuation Ratios
- Profit made on each units of Union Bank shares at the end of 2019 financial year had been estimated at N0.68 as against the previously estimated N0.62 in the comparable year
- Total Comprehensive Income per unit shares is also estimated at N0.95 versus N0.53 in corresponding year of 2018
- Price to Earnings Ratio estimated for the year stood at 10.04x as against 10.70x in 2018
- The said earnings per share is same as 9.96% of the current market price of Union Bank Bank Plc shares on the floor of the exchange when the result was released,
- Please understand that the last minute price drop is highly instrumental in the improvement seen on the yield
- The current Book Value of Union Bank is N8.67, a 11.84% improvement from the N7.75 estimated last year
- Confirming a seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity
| Investment/Valuation Ratios | |||
| Tickers | 2019 | 2018 | %Chg |
| EPS | 0.68 | 0.62 | 9.85 |
| TCIP/SHARE | 0.95 | 0.53 | 79.48 |
| P/E-Ratio | 10.04 | 10.70 | 6.23 |
| Earnings Yield | 9.96% | 9.34% | 6.64 |
| BV/Share | 8.67 | 7.75 | 11.84 |
| PBV | 0.79 | 0.86 | 7.90 |
Valuation
Our valuation for Union Bank shares is strictly hampered by the long term no dividend state, thus we explore the earnings more while we use the current pay-out ratio as part of our valuation tools. Thus, we valued each unit of Union Bank shares for N3.31. Meanwhile, considering the growing part of the financial institution, we Rated it a Hold.
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