Economy
Stock Analysis: UBA Plc, Upward Revision to 2017F Estimates; BUY
In its recently released H1-17 results, UBA recorded a significant growth in gross earnings (+34.51% y/y), driven by impressive growth across income lines– interest income (+44.25%) and non-interest revenue (+16.01%).
Over H2, we believe the improved yields on interest earning assets (expanded 205 bps to 12.32% in H1-17) – from repricing of loans and elevated yields on investment securities – will remain robust.
Hence, for 2017F, we forecast 50 bps y/y expansion in asset yield to 12.15%, resulting in interest income growth of 22.18% y/y to N322.53 billion.
On NIR, we believe the gains on FX trading (due to fx related gains and derivative transactions) and growth in fixed income securities trading will persist for the rest of the year (albeit marginal over H2), and as a result, we forecast NIR growth of 24.90% y/y to N132.01 billion for 2017F.
Accordingly, we have raised our gross earnings growth forecast higher to 49.44% y/y (previously 30.28%) in 2017F to N470.50 billion.
On funding cost, we have reviewed our 2017F cost of funds estimate 43 bps higher to 4.11%, translating to an interest expense growth of 27.82% y/y to N126.25 billion. Our upward review is driven by the surge in interest charge on borrowings – a development we attribute to the bank’s recently issued USD500 million Eurobond at a yield of 7.875% and a range of bilateral facility secured during the year – and Fed Rates hikes impact on LIBOR linked borrowings.
Note that these drove 38 bps y/y rise in cost of funds to 3.75% in H1-17.
However, we believe the strong yields on interest earning assets will outweigh the expansion in funding cost, thus, we estimate net interest margin to advance 32 bps y/y to 7.02%.
In H1-17, loan loss provision (+104.25% q/q and 8.94% y/y) surged, resulting in 129 bps y/y uptick in cost of risk to 1.93% (NPL came in ahead of 2016 level at 4.20% in H1-17), above management’s 1.5% guidance for 2017F.
The expansion in cost of risk during the period stemmed from an additional N8.57 billion provision for specific credit loss impairment, which we believe relates to exposure to general commerce, manufacturing, oil & gas, and power.
At 4.2% in H1-17, NPL was well-ahead of 2016FY’s 3.90%. For 2017F, we estimate UBA’s NPL to increase to 4.80%, from 3.90% in FY-16, and cost of risk is expected to remain elevated over H2-17, to 2.00% by year end, translating to a credit loss provision of N32.04 billion in 2017F.
Despite the impact of both the change in the treatment of AMCOM levy (which resulted in a one-off charge on other opex) and the increases in personnel expenses and depreciation expense on total opex (37.35% y/y), efficiency measures still improved over H1-17 (supported by the significant growth in operating income), with cost to income ratio contracting 80 bps to 58.60%.
For the rest of the year, we believe cost will moderate across key lines, thus, we forecast 22.22% y/y growth in opex to N186.38 billion, translating to a 593 bps y/y contraction in cost to income ratio to 56.77%, while we expect operational leverage to rise to 5.1x, compared to 4.9x in FY-16.
Overall, we forecast PBT and PAT growth of 74.51% and 14.28% to N109.87 and N82.58 billion respectively, equating to 14.28% expansion in EPS (2017F: N2.28).
UBA’s FX related gains have been largely buoyed by its sizeable FCY position from the issuance of Eurobond and inflows from other FCY borrowings during the year. The balance sheet as at H1-17 reveals that FCY borrowings worth USD405.46 million (Citi Bank Syndicated Facility USD30.46 million, Africa Trade Finance Limited USD75 million and Credit Suisse Tranche A & B USD300 million) are due for maturity between August and December 2017.
As such, we believe PAT growth will be marginal over 2018-2019F, as FX related and revaluation gains taper and NIR contribution to gross earnings contract.
Following the upward adjustment to EPS, we raised our target price by 12.17% to N12.62 (previous: N11.25) and rolled forward our valuation to 2018.
Our current 12-month TP implies upside potential of 31.59% from current levels; consequently, we recommend a BUY on the stock.
UBA is currently trading at 2017F P/BVPS of 0.7x (below the peer average of 0.9x, but in line with the 5-year average of 0.7x) and 2017 FP/E of 4.5x (below the peer average of 5.5x, but above the 5-year average of 3.1x).
By Modupe Gbadeyanka
The federal government has been asked by the Nigerian Bar Association (NBA) to suspend the implementation of the controversial tax laws.
In a reaction to the tax reform acts, the president of the group, Mr Afam Osigwe (SAN), the suspension of the laws would allow for a proper investigation into allegations of alterations in the gazetted and harmonised copies.
A member of the House of Representatives, Mr Abdussamad Dasuki, alleged that some parts of the laws passed by the parliament were different from the gazetted copy.
To address the issues raised, the NBA said it is “imperative that a comprehensive, open, and transparent investigation be conducted to clarify the circumstances surrounding the enactment of the laws and to restore public confidence in the legislative process.”
“Until these issues are fully examined and resolved, all plans for the implementation of the Tax Reform Acts should be immediately suspended,” the association declared.
It noted that the controversies “raise grave concerns about the integrity, transparency, and credibility of Nigeria’s legislative process.”
“These developments strike at the very heart of constitutional governance and call into question the procedural sanctity that must attend lawmaking in a democratic society,” it noted.
“Legal and policy uncertainty of this magnitude has far-reaching consequences. It unsettles the business environment, erodes investor confidence, and creates unpredictability for individuals, businesses, and institutions required to comply with the law. Such uncertainty is inimical to economic stability and should have no place in a system governed by the rule of law.
“Nigeria’s constitutional democracy demands that laws, especially those with profound economic and social implications, emerge from processes that are transparent, accountable, and beyond reproach. Anything short of this undermines public trust and weakens the foundation upon which lawful governance rests.
“We therefore call on all relevant authorities to act swiftly and responsibly in addressing this controversy, in the overriding interest of constitutional order, economic stability, and the preservation of the rule of law,” the organisation stated.
By Adedapo Adesanya
Demand for hot stocks, including MRS Oil Plc, buoyed the NASD Over-the-Counter (OTC) Securities Exchange by 0.52 per cent on Tuesday, December 23.
The energy company was one of the three price gainers for the session as it chalked up N19.69 to sell at N216.59 per share versus the previous day’s value of N196.90 per share.
Further, FrieslandCampina Wamco Nigeria Plc gained N2.95 to close at N56.75 per unit versus N53.80 per unit and Golden Capital Plc appreciated by 84 Kobo to N9.29 per share from Monday’s N8.45 per share.
Consequently, the market capitalisation went up by N10.95 billion to N2.125 trillion from N2.125 trillion and the NASD Unlisted Security Index (NSI) rose by 18.31 points to 3,570.37 points from 3,552.06 points.
Yesterday, the NASD bourse recorded a price loser, the Central Securities Clearing System Plc (CSCS), which gave up 17 Kobo to close at N33.70 per unit against the previous trading value of N33.87 per unit.
The volume of securities traded at the session went down by 97.6 per cent to 297,902 units from the previous day’s 12.6 million units, the value of securities decreased by 98.5 per cent to N10.5 million from N713.6 million, and the number of deals remained flat at 32 deals.
By value, Infrastructure Credit Guarantee Company (InfraCredit) Plc ended as the most actively traded stock on a year-to-date basis with 5.8 billion units exchanged for N16.4 billion. This was followed by Okitipupa Plc, which traded 178.9 million units valued at N9.5 billion, and MRS Oil Plc with 36.1 million units worth N4.9 billion.
In terms of volume, also on a year-to-date basis, InfraCredit Plc led the chart with a turnover of 5.8 billion units traded for N16.4 billion. Industrial and General Insurance (IGI) Plc ranked second with 1.2 billion units sold for N420.7 million, while Impresit Bakolori Plc followed with the sale of 536.9 million units valued at N524.9 million.
By Dipo Olowookere
It was another bullish trading session for the Nigerian Exchange (NGX) Limited as it closed higher by 0.59 per cent on Tuesday.
The market further rallied due to continued interest in large and mid-cap stocks on the exchange by investors rebalancing their portfolios for the year-end.
Yesterday, Aluminium Extrusion sustained its upward trajectory after it further appreciated by 9.96 per cent to N14.90, as Austin Laz gained 9.81 per cent to close at N2.91, Custodian Investment improved by 9.69 per cent to N38.50, and First Holdco soared by 9.35 per cent to N50.30.
Conversely, Royal Exchange declined by 7.22 per cent to N1.80, Champion Breweries shrank by 6.57 per cent to N15.65, NASCON lost 5.36 per cent to trade at N105.05, Sovereign Trust Insurance depreciated by 5.28 per cent to N3.77, and Japaul went down by 4.51 per cent to N2.33.
At the close of business, 29 shares ended on the gainers’ table and 27 shares finished on the losers’ log, representing a positive market breadth index and bullish investor sentiment.
This raised the All-Share Index (ASI) by 895.06 points to 153,354.13 points from 152,459.07 points and lifted the market capitalisation by N579 billion to N97.772 trillion from the previous day’s N97.193 trillion.
VFD Group finished the day as the busiest stock after it recorded a turnover of 192.0 million units worth N2.1 billion, GTCO exchanged 63.5 million units valued at N5.6 billion, Access Holdings traded 49.8 million units for N1.0 billion, First Holdco sold 45.8 million units valued at N2.3 billion, and Secure Electronic Technology transacted 38.3 million units worth N28.4 million.
In all, market participants bought and sold 677.4 million units valued at N20.8 billion in 27,589 deals compared with the 451.5 million units worth N13.0 billion traded in 33,327 deals on Monday, showing an improvement in the trading volume and value by 50.03 per cent and 60.00 per cent apiece, and a shortfall in the number of deals by 17.22 per cent.
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