United Capital Plc, the Nigerian investment bank and asset manager has recorded a double digit growth in profit, underpinned by a surge in investment income and proceeds from the sale of investment in associate company.
The Nigerian investment bank has been consistently recording strong earnings since it changed its name from UBA Capital, late 2014. For the first nine months through September 2016, United Capital’s net income surged by 145.54 percent to N4.69 billion from N1.91 billion, the previous year.
Total turnover increased by 39.21 percent to N5.68 billion in September 2016 as against N4.08 billion as at September 2015 while net operating income rose by 37.83 percent to N5.13 billion as the company continues to make strive amid a slow growing economy.
The top and bottom line growth was underpinned by a 431.56 percent upsurge in investment income to N2.61 billion and a N1.52 billion gain from the sale of investment in associate company.
The upward trajectory in investment income was supported by a 476.57 percent surge in investment securities and a 50.21 percent rise in fixed income securities in the period under review.
United Capital completed the sale of its 50 per cent holding in United Metropolitan Life, a joint venture established in 2005, to its Joint Venture partner, Metropolitan International Holdings (Proprietary) Limited.
The purchase consideration for the shares in United Metropolitan Nigeria Life amounted to N3.25 billion and the transaction closed on 10 May, 2016. United Capital realised a capital gain of N1.5 billion from the transaction.
Chief Executive Officer of the Nigerian based financial and investment services company, Oluwatoyin Sanni, told BusinessDay in a Feb 18 interview that its high net worth client are shunning equities and moving assets into fixed income to beat uncertainties.
“Most high end clients are playing the fixed income space due to the need for asset preservation and to its inherent liquidity,” Chief Executive Officer, Oluwatoyin Sanni.
Investors have jilted the country’s equity market due to currency woes, fuelled by the central bank’s capital control and a peg of N197-N199 since 2015.
The aforementioned decision caused severe dollar shortages and manufacturers are unable to settle suppliers of raw materials and plants, which stoked inflation and interest rates.
While the apex bank adopted the flexible exchange regime in order to allow the naira trade freely and enhance liquidity, manufacturers are complaining of dollar scarcity. The naira’s spot price climbed 0.37 percent to 306.75 by 1:48 p.m. in Lagos While they for around N475, compared with 425 in mid-September at the Bureau De change (BDC).
Nigeria, Africa largest oil producer after Angola saw its economy contract by 2.10 percent in the second quarter of the year while the IMF forecasts the GDP will contract by 1.80 percent, signalling the country’s worst recession in 25 years. Inflation has risen to 17.60 percent in August from 17.10 percent in July, according to NBS report.
The leading African and investment banking firms recorded a 54.91 percent increase in interest income on managed funds to N7.25 billion while interest expense on managed funds was spiked by 146.11 percent to N6.18 billion. Despite the economic lethargy, United Capital recorded a strong profit margin while maintaining a reasonable level of cost efficiency as evidenced in its efficiency ratios.
Net profit margin increased to 82.57 percent in September 2016 from 46.87 percent the previous year, one of the strongest in the entire among firms quoted on the floor of the NSE.
Cost to income (CIR) ratio, another measure of efficiency, fell to 33.57 percent in September 2016 from 43.88 percent last year. The lower the CIR, the more efficient a firm in reducing costs while bolstering profit.
United Capital has utilised the resources of its owners in increasing profit as return on equity (ROE) jumped to 38 percent in September 2016 compared with 18.33 percent last year. Return on assets (ROA) increased to 2.44 percent in the period under review as against 1.32 percent last year.
The undulate in earnings impacted positively on valuations as investors are buying more of the investment bank’s equity despite the crisis in the banking sector.
United Capital’s Price to Book ratio of 1.22 times means the Nigerian investment bank and asset manager has a very high share price relative to its asset value, which also signify it has been earning a very high return on its assets.
The firm’s shares rose 2.03 percent to N2.51 per share at the close of trading in Lagos, on Friday valuing it at N15.06 billion. Total assets stood at N191.68 billion while shareholders funds were N12.34 billion as at September 30, 2016. It has to ordinary shares outstanding of 6 billion.
United Capital’s principal activities include provision of investment banking services, portfolio management services, securities trading and trusteeship. The company’s investment business provides advisory services, including project finance, capital markets, mergers and acquisitions and structured finance. The asset management business provides investment services to corporate, institutions, government agencies, high net worth individuals and retail investors.
“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,” Sanni said.
BALA AUGIE
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