United Bank for Africa (UBA) Plc leveraged its pan-African reach and digital edge to outshine competition and deliver impressive growths across the top-line and bottom-line in the first half. In this analysis, Deputy Group Business Editor, Taofik Salako, highlights the six-month results within the context of analysts’ viewpoints and overall implications for shareholders and other stakeholders
Several leading investment and finance research firms have upgraded their recommendations for United Bank for Africa (UBA) Plc after the pan-African banking group released its audited report for the first half ended June 30, 2021.
Afrinvest Securities, a major stockbroking firm and member of one of Nigeria’s largest investment banking groups, placed “accumulate” rating on the UBA stock, one of two highest ratings among the four banking and two non-banking stocks recommended by Afrinvest in the immediate past week.
“Accumulate” rating, in market’s terms, implies aggressive build-up of a position in a favourable stock with comparatively higher potential for returns.
Many other analysts hold similar favourable views. FSDH Capital described UBA’s results as “solid numbers” while Cordros Capital, another respected investment banking group, stated that UBA “recorded strong earnings growth” and described the overall performance as “impressive”.
Six months of growths
The audited report and accounts of UBA for the period ended June 30, 2021 showed that profit before tax rose by 33.4 per cent to N76.2b in first half 2021 as against N57.1 billion recorded in first half 2020, translating to an annualised return on average equity of 17.5 per cent as against 14.4 per cent a year earlier. Group’s profit after tax stood at N60.6 billion, representing a significant rise of 36.3 per cent compared with N44.4 billion recorded in the half year of 2020, while gross earnings grew to N316 billion from N300.6 billion as at June 2020, a five per cent growth.
The balance sheet also improved considerably with group’s total assets crossed the N8 trillion mark as it soared to N8.3 trillion up from N7.7 trillion at the end of the 2020 financial year. Customer deposits also crossed the N6 trillion mark growing by 7.4 per cent to N6.1 trillion in the period under consideration, compared to N5.7 trillion as at December 2020. The group’s shareholders’ funds remained robust at N752.5 billion up from N724.1 billion last December, reflecting its strong capacity for internal capital generation.
Deeper perspectives
Cordros outlined that UBA’s first half performance was supported by core income segment. Cordros noted that UBA recorded an 8.3 per cent growth in interest income to N222.63 billion as all major lines recorded gains – interest on loans and advances to banks by 377.6 per cent to N10.38 billion, investment securities rose by 5.1 per cent to N87.24 billion, loans and advances to customers grew by 4.0 per cent to N118.44 billion while and cash and bank balances inched up by 1.4 per cent to N6.57 billion.
According to Cordros’ analysts’ research report, expectedly, the growth in income from investment securities was strong considering the reinvestments of maturing funds in higher-yielding instruments compared to levels obtainable in the prior quarter. Likewise, growth in loans to banks and customers, which rose by 96.3 per cent and 4.1 per cent respectively, significantly contributed to the strong performance.
Interest expense declined by 13.6 per cent to N74.56 billion as the bank recorded moderations across all contributory lines save for expense on interest-bearing liabilities, which grew by 26.7 per cent to N25.07 billion. Consequent to the income growth and declining expenses, the bank recorded a 24.1 per cent expansion in net interest income, further supported by the significant decrease in loan loss expenses , which dropped by 47 per cent to N4.14 billion.
Operating expenses closed relatively flat, growing moderately by 0.5 per cent year-on-year, as increasing regulatory cost pressures – NDIC premium, which had risen by 27.3 per cent to N7.11 billion and AMCON levy, which had risen by 24.1 per cent to N27.82 billion, were offset by moderations in personnel, building maintenance and business travel expenses. Consequently, the bank’s operating income’s growth of 10.3 per cent advanced faster than operating expenses, leading to an improvement in operational efficiency – cost-to-income ratio (ex-LLE) settled lower at 63.8 per cent relative to 69.9 per cent in the comparable period of 2020.
FSDH noted that UBA recorded an annualised return on average equity of 17.5 per cent in first half 2021 compared with 14.4 per cent in first half 2020. Net interest margin improved to 5.8 per cent in first half 2021 as against 5.4 per cent in first half 2020 “as the company played the volatile yield environment diligently”.
“The cost-to-income ratio stood at 62.3 per cent during first half 2021, compared to 67.0 per cent in first half 2020. The group recorded cost-of-funds of 2.3 per cent in first half 2021 as against 3.4 per cent in first half 2020, driven by the growth in low-cost deposits, which now accounts for some 84.3 per cent of total deposits. Moreover, the company’s capital position remains strong as the group recorded a risk-weighted capital adequacy ratio of 23.9 per cent in first half 2021 versus 22.4 per cent in the year-ago period and a liquidity ratio of 58.3 per cent in first half 2021 from 58.2 per cent in first half 2020. UBA’s loans and advances to customers increased to N2,726.4 billion at the end of second quarter 2021 compared to N2,666.3 billion in December 2020,” FSDH stated.
Cordros note that UBA’s performance “remains impressive given the challenging core business environment”
“We envisage this strong earnings growth would remain till full-year, given our expectations of sustained momentum in the acceleration of loans and higher yields obtainable to reinvest maturing assets. We also expect the bank’s continued improvements in operational efficiency to propel earnings further,” Cordros stated.
Improved dividend
With improvements in earnings and stronger outlook, the Tony Elumelu-led board of directors increased interim dividend payout by 17.6 per cent to 20 kobo per share for the first half 2021, as against 17 kobo paid for the first half 2021. The dividend increase was supported by stronger retained earnings as earnings per share had risen from N1.24 recorded in first half 2020 to N1.69 in first half 2021. UBA is one of the five main tier 1 banks that declare dividend twice a year, providing shareholders with regular incomes.
The increase in interim dividend payout implies strong possibility for significant increase in returns for 2021. UBA had paid a final dividend per share of 35 kobo at the end of 2020, bringing the total dividend for the year to 52 kobo per share as the bank had paid an interim dividend of 17 kobo per share earlier in the year.
Key extracts of the audited report and accounts of UBA for the year ended December 31, 2020 had shown that gross earnings rose by 10.8 per cent to N620.4 billion in 2020 compared with N559.8 billion recorded in the corresponding period of 2019. The bank’s total assets also grew by 37 per cent to N7.7 trillion in 2020. Despite the challenging business environment during the COVID-19 pandemic and the resultant effect on economies globally, the bank’s profit before tax rose to N131.9 billion compared with N111.3 billion in 2019. Profit after tax rose by 27.7 per cent to N113.8 billion compared with N89.1 billion in 2019.
On the cost side, operating expenses grew by 10.1 per cent to N249.8 billion, as against N217.2 billion in 2019, well below average inflation rate of 13.2 per cent for the year, thus reflecting the bank’s cost effectiveness.
The balance sheet also showed that UBA recorded a remarkable 24 per cent growth in loans to customers at to N2.6 trillion in 2020 while customer deposits increased by 48.1 per cent to N5.7 trillion, compared with N3.8 trillion recorded in the corresponding period of 2019, reflecting increased customer confidence, enhanced customer experience, successes from the ongoing business transformation programme and the further deepening of its retail banking franchise.
Management outlook
On the strategic outlook of the banking group, Group Chairman, United Bank for Africa (UBA) Plc, Mr. Tony Elumelu, had outlined that the bank had made strategic decisions that strengthened its resolve to earn the industry leadership that it has envisioned in Nigeria, Africa and globally.
According to him, the bank remains committed to ensuring its viability amid an ever-changing business environment and to continue be a role model for African businesses by showcasing the best of Africa to the world.
He pointed out that the work the bank had done in strengthening its governance structures group-wide and in improving its business and operating models positioned it to benefit from global and national macroeconomic changes and to achieve significant market share gains across its operations.
He noted that the bank spearheaded strategic investments in digital banking and technology platforms to further promote self-service banking while also focusing on enhancing the capabilities of people through various online capacity development programmes.
Group Managing Director, United Bank for Africa (UBA) Plc, Mr. Kennedy Uzoka, said the first half has been a strong period for the group as global economic recovery exceeded expectations, creating a positive rub-off on consumer and corporate confidence, savings and investment activities.
“We saw this positively impacted our business, as we continued to leverage our key strategic levers – people, process and technology, and our customer first philosophy, to revolutionise customer experience at UBA,” Uzoka said.
He added that the bank’s investment in the rest of Africa excluding Nigeria continues to yield good results for the group.
According to him, the benefits of pan-African business diversification accruing to the group is once again evident, with gross earnings and interest income growth of 5.1 per cent and 8.3 per cent respectively, despite the low yield environment in its largest market, Nigeria.
“We are making remarkable progress on our strategy that is progressively positioning UBA as the bank of choice on the continent, driven by our emphasis on tech-led innovation and best customer experience,” Uzoka said.
He pointed out that the bank recognised the far-reaching effects of the pandemic on businesses globally, and remained focused on its promise to always provide customers with the best banking experiences possible.
“Our first half 2021 performance reflects our progressive efforts in building on the strong momentum that we started the year with. As a purpose-driven organisation, we remain resolute in our drive for sustained growth in customer acquisition, transaction volumes and balance sheet, as we consolidate our ‘Africa’s Global Bank’ market position in the years ahead, uplifting livelihoods across the continent,” Uzoka said.
Group Chief Financial Officer, United Bank for Africa (UBA) Plc, Ugo Nwaghodoh noted that the bank’s goal was to achieve marked improvement in earnings quality whilst maintaining positive operating leverage as well as top-notch asset quality.
According to him, the capital position of the bank remained strong, with a capital adequacy ratio of 23.9 per cent in first half 2021 as against 22.4 per cent in first half 2020 while liquidity ratio improved from 58.2 per cent to 58.3 per cent.
“This is robust enough to support our growth ambitions,” Nwaghodoh said.
He pointed out that even while the operating environment remains largely uncertain and volatile, despite marked improvement from COVID-19 induced macroeconomic stress, UBA will continue to build resilience through its geographically diversified business model to support headline earnings growth for the group.
“We remain committed to our 18 per cent and 15 per cent respective RoAE and deposit growth guidance for full year 2021, as we continue to invest in growth opportunities across our geographies of operation, whilst managing capital and balance sheet prudently,” Nwaghodoh said.
With positive reviews across the counters, UBA appears to be well-positioned for sustained growth and improved returns to shareholders.
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