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UBA Q1’13 results: Consensus estimates for 2013 likely to be revised up –FBN Capital

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The Nigerian Stock Exchange yesterday published United Bank for Africa’s (UBA) plc first-quarter (Q1) 2013 results. Similar to Q4 2012 figures, Q1 2013 Profit After Tax (PAT) came in very strong, at N15.6billion, improving 19.1 percent year-on-year (y/y) over the N13.1billion that was reported in Q1 2012.

Taking a look at this result, analysts at FBN Capital noted in their first reaction to this result that “The PAT equates to an return on average equity (ROAE) of 31.9 percent (annualised). Although slightly below the 32.9 percent recorded for its full year 2012, the annualised Q1 2013 ROAE is among the highest in the sector.”

“While both income lines contributed to the y/y growth in profitability, funding income was the stronger of the two: net interest income was up 23.2 percent y/y to N27.2billion while non-interest income advanced 9.1 percent y/y to N17.5billion. As such, profit before provisions grew 17.5 percent y/y to N44.6billion. PBT growth of 9 percent y/y was slower than that on the profit before provisions line because loan loss provisions, though relatively small in magnitude at -N177million, compared with a recovery figure of N2.2billion in Q1 2012, and operating expense (opex) also grew 9 percent y/y,” the analysts said.

According to FBN Capital analysts, “while net interest income and non-interest income were up 24 percent quarter-on-quarter (q/q) and 12.7 percent q/q respectively, PBT grew significantly, by 139.9 percent q/q. This was because provisions of -N177million were well below the -N2.4billionn recorded in Q4 2012. Compared to our forecasts, PBT was ahead by 23.5 percent while PAT surprised by 55 percent. The better-than-expected results were driven primarily by net interest income (12 percent ahead of our forecast) and provisions coming in 90 percent lower than we had modeled. Non-interest income was 1 percent below our forecast.”

“Given that the underlying results in Q4 2012 were weaker than expected, we welcome the fact that Q1 2013 results showed a strong rebound in profits. We await management’s comments on what drove the weakness in Q4 when the conference call holds on Friday. Having said that, the strong result on the net interest income line in Q1 2013 also poses some questions. We cannot fully reconcile the 24 percent q/q growth in the net interest income with the q/q movements in interest earnings assets and deposit liabilities.

The two major components of the former – loans and investment securities – showed q/q changes of -3.8 percent and 7.9 percent respectively. The growth in investment securities was more significant given that the balance on this line as of end of 2012 (N680.8billion) was higher than net loans and advances of N658.9billion.

Deposits growth was much stronger than we would have expected – by 12.1percent, leading to UBA’s loans-to-deposit ratio declining further to an industry low of 32.9 percent in Q1 2013 from 38.3 percent in Q4 2012. Given an environment of declining yields and the single digit q/q growth in interest earnings assets (combined), the 26.2 percent q/q growth in interest income is remarkable. We would need some further clarification from the bank on this point.