United Capital plc, a Nigerian-based financial and investment services company has defied the odds as gains from the sale of investment in associate firm helped magnify earnings in a slow growing economy.
The stellar performance means the effective cost management strategy as well as improvement in information technology has paid off tremendously.
Experts are of the opinion that the company’s shareholders will invariably earn a higher return on their investments in form higher dividends and share price will spike since investors crave for the equity of a firm with strong profit.
For the first six months through June 2016, United Capital’s net income surged by 156.42 percent to N3.59 billion as against N1.40 billion the same period of the corresponding year (HI) 2015. Pretax profits were up by 47.12 percent to N2.06 billion in June 2016 from N1.40 billion the previous year.
The growth at the bottom line was bolstered by gains from the sale of investment in associate company to the tune of N1.52 billion. This translates to 41.56 percent of total revenue.
There was a major divestment from its insurance business earlier this year. In May, United Capital sold 50 percent of its holding in United Metropolitan Life and realised N1.50 billion while purchase consideration was N3.25 billion.
The investment bank was in a Joint Venture (JV) with Metropolitan International Holdings (Proprietary) Limited, a South African company.
Group Chief Executive Officer of United Capital, Oluwatoyin Sanni said the partnership has led the way in South African and Nigerian businesses working together for the benefits of Africans.
“Through this partnership, we established a pioneering insurance business, which has led in customer satisfaction and product innovation,” said Oluwatoyin
United Capital made a remarkable stride at the top lines as total revenue increased by 32.72 percent to N3.65 billion in June 2016 from N2.75 billion as at June 2015.
The strong growth in revenue can be attributed to a 28.35 percent increase in fees and commission income to N1.72 billion in the period under review from N1.34 billion as at June 2015.
A cursory examination of the financial statement of the investment bank shows investment securities were up by 15.09 percent to N1.22 billion in June 2016 compared with N1.06 billion as at June 2015. Fixed deposits moved by 72.53 percent to N492.56 million in June 2016 as against N285.48 million as at June 2015. Analysts say the investment bank was able to earn significant revenues predominantly from the execution and delivery of debt capital and trust services as well through growth in asset under management (AUM) and the prudent investment of client and proprietary funds.
Indeed the company has undoubted succeeded in the execution of its long term strategy and displayed resilience and resourcefulness as its net interest margin increased by 102 percent to N695.27 million in June 2016 from N344.21 million as at June 2015.
Also, interest income from managed funds spiked by 148.63 percent to N4.55 billion in June 2016 compared with N4.55 billion from N1.83 billion as at June 2015. Interest income from managed funds were surged by 156.67 percent to N3.85 billion in June 2016 as against N1.50 billion as at June 2015.
While other firms are grappling with lower margins as a result of systematic and cost of doing business, United Capital, through cost effective control mechanism was able to reduce costs and bolster margins.
United Capital’s net margin, a measure of profitability and efficiency, increased to 98.22 percent in June 2016 from 50.90 percent in the previous year. Cost to Income ratio (CIR), fell to 31.37 percent in June 2016 as against 44.09 percent as at June 2015. Operating expenses were down by 4.46 percent to N1.07 billion. A lower the CIR means a bank has been able to reduce costs while keeping costs to its barest minimum.
The result was driven by the group’s growing market share, efficient execution of key mandates and effective cost management driven by improvements in operations and IT capabilities, thereby ensuring that we optimised value and retained a significant proportion of earnings, according to Sanni.
“We continue to pursue our clear and consistent strategy, which has delivered a strong performance for shareholders, and we remain positive about our future opportunities within the Nigerian and African market, not-withstanding the challenging macro-economic environment,” said Sanni.
Nigeria, Africa’s largest economy has been struggling with a significant drop in the price of oil that makes up two thirds of government revenue and nearly all of foreign exchange earnings.
These uncertainties spiraled lenders Non performing Loans (NPLs) and increased exposure to the oil and gas as they borrowed money to oil companies when the price of the commodities were favorable.Collateralized asserts were beaten down as a result of the economic lethargy.
Capital controls and restrictions imposed by the Central Bank in order to curb inflation and protect the reserves caused liquidity squeeze as banks profit received battering since huge write offs were made due to large defaults. The economy contracted by 0.4 percent in the first quarter, the highest since 2004. Analysts say a recession is inevitable on the back of delay in the passage of the budget and increased price of gasoline.
However, the introduction of a flexible exchange rate policy by the Abuja based bank where by the market determines the exchange rate is seen by analysts as having a positive impact on lenders earnings. Despite the unpredictable environment, United Capital was able to deploy or utilize shareholder’s resources in generating higher profit. Return on equity (ROE) increased to 31.65 percent in June 2016 compared with 13.43 percent as at June 2015. Return on Assets (ROA) followed the same up trajectory as it jumped to 2.20 percent in June 2016 from 0.97 percent as at June 2015.
United Capital has a strong asset base as total assets increased by 18.10 percent to N162.96 billion in June 2016 as against N144.10 billion the previous year.
The investment bank has total managed funds of N125.93 billion in its balance sheet; this represents a 15.42 percent increase from N109.10 billion recorded the previous year.
It must be noted that fixed income note make up 60.80 percent of managed funds. This validates the Chief executive Officer of the investment bank assertion that high networth clients are shunning equities and moving assets into fixed income to beat market uncertainty.
Fixed income notes increased by 15.42 percent to N76.59 billion in June 2016 compared with N58.40 billion as at June 2015. Sinking fund fell by 5.26 percent to N46.84 billion in the period under review as against N48.84 billion as at June 2015.
“We remain committed to achieving our goal of building Africa’s leading investment and financial services group and to work hard to accomplish our strategic objective set out in 2015 & 2016. Our priorities include: driving effectiveness and efficiency initiatives to improve productivity whilst optimising costs. Further improving our brand awareness, corporate image and brand value to achieve market-wide recognition and appreciation of our corporate identity.” said Sanni.
BALA AUGIE
