UBA Focus On Retail Space Drives Solid Earnings Performance


The United Bank for Africa Plc (‘UBA’ or the ‘Group) reported an 11% YoY growth in gross earnings, from N559.81bn in FY’2019 to N620.38bn in FY’2020. Operating income grew by 16% YoY from N328.04bn in FY’2019 to N380.64bn in FY’2020.

Profit after tax rose by 28% YoY from N89.09bn in FY’2019 to N113.77bn in FY’2020.

However, despite the double-digit growth recorded across major income lines, the Group
declared a lower dividend payout (16% in FY’2020 vs 38% in FY’2019), attributed to the need to be conservative amid the challenges and risks that the coronavirus pandemic poses.

Policy-Driven Balance Sheet Growth Supports Earnings

Total assets grew by 37% YoY from N5.62trn as of FY’2019 to N7.69trn as of FY’2020. The growth in total assets was majorly funded by a 48% YoY increase in customer deposits from N3.83trn as of FY’2019 to N5.68trn as of FY’2020. The sustained accommodative monetary policy stance of the monetary policy authorities induced an excess liquidity in the financial system during the period.

Therefore, the excess liquidity in the financial system drove increased inflows in the form of deposits for the Group. The Group’s increased focus on the retail segment yielded results, as reflected in the Group’s 900 basis points increase in its CASA (current accounts/savings account) from 73% as of FY’2019 to 82% as of FY’2020.

UBA Focus On Retail Space Drives Solid Earnings Performance 2-Brand Spur Nigeria

Given the increased funding during the period, the Group’s loan book (customer loans)
expanded by 24% YoY from N2.06trn as of FY’2019 to N2.55trn as of FY’2020. The composition of the Group’s loan book showed that loans to corporates grew by 21% YoY from N1.96trn to N2.37trn, while loans to individuals grew from N105.77bn to N181.07bn which further emphasisesthe increased focus of the Group to drive increased activities in the retail space.

In terms of sectoral distribution, the Group’s highest loan book exposures were in the oil and gas (19%), public sector (17%), manufacturing (12%), general commerce (10%), and power and energy (9%). The top five sectors contributed 67% to the Group’s total loan book distribution.

Non-performing loan lowered by 60 basis points from 5.30% as of FY’2019 to 4.70% as of FY’2020, despite the loan book growth. The sector distribution of the Group’s NPLs include oil and gas (37%), consumer loans (23%), general commerce (15%), public sector (13%), and manufacturing (4%).

The Group’s investments in financial securities rose by 64% YoY, from N1.57trn as of FY’2019 to N2.58trn as of FY’2020, with the majority of the investments(c.72%) in treasury bills.

Low-Yield Environment Limits Upsides

Total interest income grew by 6% YoY from N404.83bn in FY’2019 to N427.86bn in FY’2020.

Interest income on loans and advances, which contributes c.52% to total interest income, grew by 8% YoY. A breakdown of interest income on loans and advances to customers revealed that loans to corporates grew by 2% YoY, while loans to individuals grew by 138% YoY. The Group launched a new financial product ‘Click Credit’ during the period, aimed at driving retail lending.

We attribute the growth in retail loans to the rollout of the financial product. On the other hand, we attribute the weak growth in corporate lending to increased competition in the market amid a low-yield environment and fewer quality risk assets. Nonetheless, corporate lending accounted for 74% of the total interest income on loans to customers.

Interest income on investment securities grew by 8% YoY from N163.68bn in FY’2019 to
N176.00bn in FY’2020, despite a 64% YoY growth in investment securities. The low-yield
the environment during the financial year impacted total interest income.

UBA Focus On Retail Space Drives Solid Earnings Performance 2-Brand Spur Nigeria

Excess Liquidity Drive Down Funding Cost

Driven by increased financial system liquidity (which resulted in the repricing of deposits) and an aggressive drive on its retail business, the Group’s cost of fund lowered from 4.0% in FY’2019 to 2.90% in FY’2020. Specifically, interest expense declined by 8% YoY from N182.96bn in FY’2019 to N168.39bn in FY’2020, despite a 39% YoY increase in interest-bearing liabilities from N4.89trn as of FY’2019 to N6.79trn as of FY’2020.

Nonetheless, the decline in cost of fund, the Group’s net interest margin declined by 60 basis points from 6.0% in FY’2019 to 5.40% in FY’2020. Net interest income grew by 17% YoY from N221.88bn in FY’2019 to N259.47bn in FY’2020. A 48% YoY rise in impairment losses from N 18.25bn to N27.01bn lowered net interest income growth to 14% YoY.

UBA Focus On Retail Space Drives Solid Earnings Performance-Brand Spur Nigeria
UBA Focus On Retail Space Drives Solid Earnings Performance-Brand Spur Nigeria

Solid Non-Interest Income Growth Boost Bottomline

Non-interest income recorded a 19% YoY growth from N124.42bn in FY’2019 to N148.18bn in FY’2020, driven by a 58% YoY increase in net trading income from N37.63bn to N59.45bn, and a 3% YoY growth in net fee and commission income from N80.00bn to N82.61bn.

The total contribution of non-interest income to total operating income increased by 100 basis points from 38% in FY’2019 to 39% in FY’2020.

The combined performance of a 14% YoY growth in net interest income and a 19% YoY growth in non-interest income gave rise to a 16% YoY growth in total operating income, from N328.04bn in FY’2019 to N380.64bn in FY’2020. On the back of a relatively unchanged cost-to-income ratio of 66%, profit before tax rose by 18% YoY from N111.29bn to N131.86bn. Profit after tax, however, advanced by 28% YoY from N89.09bn to N113.77bn due to a lower effective tax rate in FY’2020 (14% in FY’2020 vs 20% in FY’2019).

Conservative View Towards Dividend Payout

The Group surprised the investing public with its decision to declare an N0.35 final dividend, representing a 56% decline relative to N0.80 declared in FY’2019. The Group’s management attributed the lower dividend payout to the need to be conservative amid the lingering impact of the coronavirus pandemic. Also, the Group emphasized that regulatory restrictions across its other African markets boost capital levels contributed to the low dividend payout.

Business Outlook

We expect to see a sustained loan book growth, amid regulatory stances. Although we are beginning to see an upward trend in yields, we yet expect the Group’s deposits to grow on the back of continued aggressive drive in its retail business. Based on our expectations of a retail deposit drive, we see the possibility of a higher yield on assets relative to the cost of the fund.

We believe that the introduction of the financial product ‘Click Credit’, which grants salary earners access to quick loans at 1.58% monthly, will further drive interest income growth.

We also expect to see a significant improvement in non-interest income, expected to be driven by initiatives implemented and strategic e-banking infrastructure developed by the Group in FY’2020. Some of the initiatives include direct integration of chatbot ‘Leo’ to WhatsApp, implementation of Mobile Money for Rest of Africa (a geographical operating segment), which allows customers to link their wallets to a UBA account, launch of cardless cash withdrawal on ATMs for Nigeria & Rest of Africa, which provides withdrawal on all UBA ATMs without the use of ATM debit/credit cards.

We expect all these initiatives to drive increased transaction value and income for the Group. In the medium term, we expect the Group to take advantage of the opportunities that come with the AfCTA, given the Group’s significant presence across major countries of the continent.


We estimate an N11.89 fair value for the stock (previous: N14.33), using a blend of dividend discount model and residual income valuation methodologies.

The lower fair value relative to our previous estimate resulted from an increase in the cost of equity used to discount our projected numbers. We note the rising yield environment, hence, the pass-through effect in the form of a higher risk-free rate drove an overall increase in the discount rate.

Also, we revised our dividend projections. Although the Group attributed the conservative dividend payout in FY’2020 to regulatory restrictions, we expect to see a normalized payout in the future.

However, we lowered our future expectations from an average dividend payout of 37% to an average payout of 27%.

At the current market price of N7.15, the stock trades at 1.94x forward price-to-earnings (P/E) ratio, relative to our 3.23x justified P/E ratio, which implies an expected price return of 66%.

Based on our expectations of an N1.00 dividend for FY’2021, the dividend yield on the stock is estimated at 14%. Overall, we expect to see an 80% total return on the stock. Hence, we recommend a BUY.