After two months of anticipation, one of Nigeria’s leading tier-1 lenders, the United Bank for Africa Plc (UBA) on Tuesday, 1st of September 2020, published its H1’2020 audited financial statements for the period ended June 30th 2020.
From the result, UBA Group’s Gross Earnings grew by 2.24% to ₦300.26 billion compared to the corresponding period of H1’19 (₦293.69 billion), while its Profit After Tax (PAT) shed 21.69% to settle at ₦44.43 billion compared to the ₦56.74 billion reported in the corresponding period of 2019.
Strong Increases in Expenses Erode Positive Gains in Gross Earnings
- The strong performance of the Group’s Gross Earnings was jointly driven by a 0.34%, 6.73%, and 7.52% growth in Interest Income, Fees & Commission Income, and Net Trading and FX income which settled at ₦25.59 billion, ₦55.87 billion, and ₦35.21 billion respectively, relative to ₦204.89 billion, ₦52.34 billion, and ₦32.75 billion in the corresponding period last year.
- However, despite the above gains and the 8.97% reduction in Interest Expenses (to ₦86.26bn in H1’20), the Group’s Profit Before Tax (PBT) and Profit After Tax (PAT) for the period fell by 18.71% and 21.67% compared to the corresponding period of 2019.
- Specifically, the Group’s PBT and PAT in H1’20 settled at ₦57.13 billion and ₦44.43 billion respectively, compared to ₦70.27 billion and ₦56.74 billion in H1’19.
- This reduction in PBT and PAT came as a result of strong increases in some expense items – Impairment Charges for Credit Loss on Financial Asset (up 22.60%y/y to ₦7.81bn), Other Operating Expenses (up 150.22%y/y to ₦77.97bn), Employee Benefit (up 19.87%y/y to ₦44.57bn), and Fees and Commission Expenses (up 6.12%y/y to ₦17.29bn) relative to H1’19 period.
Deposit Size Jumped Despite Covid-19 Lockdown
- Despite the disruption of economic activities by the Covid-19 pandemic in most of the H1’20 period, UBAs Deposit from Customers and other Banks rose by 45.8% to ₦5.31 trillion, relative to ₦3.68 trillion in H1’19.
- Nevertheless, UBA’s Gross Loans (both to Customers and other Banks) only increased by 27.41% to ₦2.25 trillion, from ₦1.77 trillion in H1’19. This brings the Loan to Deposit Ratio of the Group to 44.1% in H1’20; trailing CBN benchmark of 65% Loan-to-Deposit policy, and prior-year performance of 50%.
Strong Expansion in Operating Cash Flow Bolster FCF position
The Group’s Net Cash Generated from Operating Activities expanded by 166.6% in the period (to ₦628.50 billion) compared to ₦235.75 billion in the corresponding period of 2019.
- As a result, the Free Cash Flow of the Group rose by 165.29% to ₦597.36 billion in H1’20 compared to ₦225.17 billion in H1’19.
- Conversely, the Net Cash used for Financing Activities dipped by 715.79% from (₦37.06) billion in H1’19 to (₦302.31) billion in H1’20, following the ₦256.21 billion and ₦195.79 billion repayments of Borrowings and Transfer of Deposit from other banks by customers in the period.
Conclusion
- As a result of the decline in the Group’s PAT in H1’20, its measure of potential return per unit of equity holders – the Earnings Per Share (EPS), dipped by 23.5% to settled at ₦1.24, compared to ₦1.62 in H1’19.
- Consequently, we reviewed our 12-months target price for UBA for the current financial year to ₦8.20, from ₦9.40 in the 2019 financial year. Nevertheless, this new revised target price still represents a 27.13% upside potential given Wednesday’s closing price of ₦6.45.
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