Still on UBA’s strong double-digit growth in H1

Recently, United Bank for Africa (UBA) Plc released its audited financial results for the half year (H1) ended June 30, 2022. The African global bank recorded double-digit growth across key income lines as well as significant progress in the contribution from its subsidiaries.

The bank’s H1 2022 scorecard

At the end of the first two quarters of the year, UBA was able to deliver a 12.6 percent growth in profit before tax (PBT) to N85.7billion, up from N76.2billion recorded in the same period of 2021.

The tier1 lender also delivered impressive numbers, with gross earnings hitting N372.4billion, a solid 17.8 percent growth when compared with N316billion that was posted the same period in the prior year.

The bank was able to achieve this record feat despite numerous business, economic as well as geopolitical environmental challenges which include: continued supply-chain interruptions due to Covid-19, the Russia and Ukraine conflict, and the resultant rise in prices of global commodities that characterized the first six months of the year.

Drivers of the double-digit growth

Gross earnings which grew by 17.8percent was driven by double-digit growth in interest and non-interest income. It also reported a 130-basis points improvement in return on average equity, reaffirming UBA commitment to delivering value to shareholders.

Also, moderation in ratio of non-performing loans to 3.3percent, indicates UBA’s improved asset quality, despite growth in its loan book; while adequate non-performing loan (NPL) coverage ratio showcases the Group’s ability to mitigate potential credit losses.

Operating income also grew by 20.1percent to N256billion in the period, while UBA’s profit after tax (PAT) closed the first half stronger at N70.3billion, up by 16.1 percent compared to the N60.6 billion same period in 2021.

The bank’s record double-digit growth in PBT was largely driven by 30.1percent growth in income from fees and commission and 15.5percent growth in interest income. Also, it recorded 50 basis points improvement in Net Interest Margin (NIM) on the back of continuous asset pricing while holding down funding cost. Cost of Funds (CoF) was flat at 2.1percent despite the uptick in the interest rate environment.

UBA saw strong growth in electronic banking income in H1’22 as the bank leveraged state-of-the art-technology to broaden and deepen its payment solutions, and transaction volumes. Also, Non-Interest Income (NII), was driven by 77.6percent growth in trade transaction income, 109.2 percent increase in credit-related fees and commissions, 21.5percent growth in account maintenance fee and 22.7 percent increase in electronic banking income. UBA’s electronic banking income (22.7percent growth) remains the largest noninterest income line in H1’22, accounting for 37.7percent of total fees and commission income, and driven by the bank’s sustained gain in market share of digital banking business across the group.

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The Group maintains a well-diversified balance sheet, with about 40.2percent of the assets in liquid, low-moderate risk instruments. Customer deposits continue to dominate UBA’s funding mix (82percent), even as Current Account Saving Account (CASA) grew by 3 percent in H1’22 as the bank deepens wallet share of corporates, commercial and retail customers.

UBA’s half-year result also showed total assets continued on an upward trajectory, increasing 5.4 percent to about N9trillion. The total assets which grew 5.4percent in H1’22 was driven largely by growth in investment securities, customer loans and placements.

Well diversified loan book

UBA’s well-diversified loan book across strategic economic sectors translates to moderate credit risk. Its prudent underwriting standards and proactive credit monitoring resulted in a further drop in non-performing loans ratio to 3.3percent; while its coverage ratio at 159percent underscores the group’s capacity to offset credit losses.

The bank also delivered on its core mandate of extending loans to credit-worthy customers for the overall economic development, as loans and advances increased by 4 percent to N3trillion; while deposits rose by 7.9 percent to N7.6 trillion at the end of the period.

Shareholders’ funds however declined marginally by 2 percent to N788.5 billion, owing majorly to the decline in its foreign operations translation reserve as well as fair value losses suffered from the investment securities valuation occasioned by the increasing interest rate regime across the globe.

With the strong double-digit growth in profit after tax (PAT) vis-à-vis, the marginal decline in shareholder’s fund, the Group’s return on equity (RoE) closed the period stronger at 17.7percent, whilst return on assets (RoA) came to 1.6percent, up by 9 basis points.

The Board of Directors of UBA Plc reaffirmed its commitment to shareholders and the investing public by declaring an interim dividend of 20kobo per share for every ordinary share of N0.50 each held by its shareholders.

The CEO speaks

Oliver Alawuba, Group Managing Director/Chief Executive Officer, UBA Plc said the stellar performance in H1, 2022 was in line with management’s expectation, adding that UBA continued to focus on its customer 1st philosophy “to pursue the mission of providing superior value to our stakeholders had increased low-cost customer deposits and boosted the growth of its payment and transaction banking.”

He said: “The financial year 2022 showed initial signs of recovery of economies across the globe, despite continued COVID-induced supply-chain disruptions. However, geopolitical challenges including the Russia and Ukraine conflict resulted in escalation of global commodity prices, particularly grains and crude oil, which have taken a toll on several economies. Notwithstanding these developments, our half-year numbers came out stronger than the prior year, with top and bottom-line reaching new record highs”.

According to Alawuba, “The Group’s profitability increased by 12.6percent to N85.7 billion, with double-digit growth recorded across key income line. The Bank also recorded a decent 20 percent growth in net interest income as it continues to moderate cost of funds whilst improving yield on assets, thereby contributing to the strong 20 percent growth in operating income.

“Our investments in state-of-the-art technology continue to yield expected results, evident in the huge boost of our digital banking income, which grew 22.7percent year-on-year to N36.3 billion. These gains have enabled us to optimize net earnings amid the accelerating inflationary pressure, the currency devaluation, and increased regulatory-driven cost,” he said.

For equity analysts, UBA is still a BUY…

Lagos-based Coronation Research analysts in their September 9 commentary on UBA H1’22 result said: “The group’s pre-provision operating profits were in line with our expectations. However, Net profits were lower than our and the market’s forecasts following higher-than-expected Loan loss provisioning. Nonetheless, we are encouraged by the double-digit earnings growth, NIM expansion and the RoE uplift.”

“Looking ahead, the benefits of rising asset yields are likely to filter through to funded income and further support earnings in third-quarter (Q3). In addition, the stock … is trading at a deep discount to its peers and historical valuation, and has a 2022F dividend yield of 15.9perecent. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock.”

The N7.20kobo per share which the bank stocks exchanged as at September 26 implies a year-to-date (YtD) decline of 1.37percent.

Also, Joshua Odebisi, equity research analyst at Vetiva in their September 9 commentary on UBA half year 2022 result said the stock remains a BUY. “As we have maintained our FY’22 Profit and dividend projections, we also maintain our 12-month target price (TP) at N14.52.”

From the Conference Call

During the bank’s H1 results conference, the GMD told participants, “The new leadership of UBA Plc is largely to entrench the culture of ‘Execution’ groupwide whilst driving our core Strategic goals: to lead in Nigeria, to lead in Africa, and to be top 3 most profitable bank and SIB in all countries we operate”.

“The Group’s primary strategy is to continue to focus on the ‘Customer’ – that is driving the implementation of the ideals of Customer First (C1st) Philosophy. We are very optimistic that the Nigerian economy and broader African continent would continue to recover and rebound from the aftermath impacts of the COVID-19 pandemic and ongoing Russia-Ukraine war.

“We will continue to consolidate our operations globally and explore new opportunities as they manifest in the normal course of business. The Bank recently commenced operations in Dubai (UAE), thereby increasing our presence countries to 24 and in 4 continents (Africa, Europe, America and Asia). Our team of committed and motivated Workforce, Management and well-diversified Board will continue to sustain our strong performance, as we match towards actualising our strategic goals and enterprise goals,” Alawuba stated.

UBA is a leading pan-African financial institution, offering banking services to more than thirty-seven million customers across 1,000 business offices and customer touch points in 20 African countries. Its presence in high growth rate economies implies the prospect for higher growth. With a presence in New York, London and Paris and now the UAE, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross-border payments and remittances, trade finance and ancillary banking services.