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 Adedapo Adesanya
The duo of Geo-Fluids Plc and Afriland Properties Plc propelled the NASD Over-the-Counter (OTC) Securities Exchange up 0.13 per cent on Friday, January 10.
Investors gained N1.4 billion during the trading session after the market capitalisation of the bourse ended at N1.053 trillion compared with the previous day’s N1.052 trillion, and the NASD Unlisted Security Index (NSI) increased at the close of business by 4.07 points to wrap the session at 3,073.93 points compared with 3,069.86 points recorded at the previous session.
Geo-Fluids added 25 Kobo to its value to close at N4.85 per unit compared with the previous session’s N4.60 per unit, and Afriland Properties Plc gained 24 Kobo to close at N16.25 per share versus Thursday’s closing price of N16.01 per share.
There was a 35.4 per cent fall in the volume of securities traded in the session as investors exchanged 4.3 million units compared to 6.6 million units traded in the preceding session, the value of shares traded yesterday went down by 37.4 per cent to N17.2 million from the N27.5 million recorded a day earlier, and the number of deals decreased by 47.2 per cent to 19 deals from the 36 deals recorded in the preceding day.
FrieslandCampina Wamco Nigeria Plc remained the most active stock by value (year-to-date) with 1.9 million units worth N74.2 million, followed by 11 Plc with 12,963 units valued at N3.2 million, and Industrial and General Insurance (IGI )Plc with 10.7 million units sold for N2.1 million.
IGI Plc closed the day as the most active stock by volume (year-to-date) with 10.6 million units sold for N2.1 million, trailed by FrieslandCampina Wamco Nigeria Plc with 1.9 million units valued at N74.2 million, and Acorn Petroleum Plc with 1.2 million units worth N1.9 million.
By Adedapo Adesanya
The Naira witnessed a depreciation on the US Dollar at the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Friday, January 10.
According to data from the FMDQ Exchange, the local currency weakened against the greenback yesterday by 0.12 per cent or N1.80 to sell for N1,543.03/$1 compared with the preceding day’s N1,541.23/$1.
The pressure on the domestic currency came as the access granted to the Bureaux de Change (BDC) operators by the Central Bank of Nigeria (CBN) to purchase FX from the official market through the Electronic Foreign Exchange Matching System (EFEMS) platform prepares to end next week, precisely on January 19.
The CBN had given a 42-day window to the operators to access the platform to help stabilise the Naira in December, and this expires next week.
On Friday, the Nigerian currency tumbled against the Pound Sterling in the official market by N30.78 to sell for N1,889.29/£1 compared with the previous day’s N1,858.51/£1, but gained N5.48 against the Euro to finish at N1,583.81/€1, in contrast to Thursday’s rate of N1,589.29/€1.
As for the parallel market, the Nigerian Naira remained stable against the US Dollar during the trading session at N1,650/$1, according to data obtained by Business Post.
In the cryptocurrency market, it was bearish as the US economy added 256,000 jobs last month, the Bureau of Labor Statistics reported on Friday, topping forecasts for 160,000 and up from 212,000 in November (revised from an originally reported 227,000).
However, the readings came after a number of recent economic reports triggered a broad-market pullback across asset classes such as crypto as investors quickly scaled back the idea of a continued series of Federal Reserve rate cuts in 2025.
Cardano (ADA) fell by 3.6 per cent to trade at $0.921, Solana (SOL) slumped by 2.8 per cent to $185.93, Ethereum (ETH) depreciated by 1.4 per cent to $3,233.27, Litecoin (LTC) lost 1.3 per cent to finish at $103.62, Dogecoin (DOGE) shed 0.5 per cent to sell at $0.3315, Bitcoin (BTC), waned by 0.2 per cent to $94,154.43, and Binance Coin (BNB) went south by 0.1 per cent to $693.30.
On the flip side, Ripple (XRP) jumped by 1.5 per cent to settle at $2.34, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) sold flat at $1.00 each.
By Dipo Olowookere
Profit-takers took control of Customs Street on Friday, plunging it by 0.08 per cent at the close of trading activities.
The sell-offs were across all the key sectors of the Nigerian Exchange (NGX) Limited on last trading session of the week.
The insurance space went down by 1.53 per cent, the banking index depreciated by 0.41 per cent, the consumer goods sector weakened by 0.16 per cent, and the energy counter slumped by 0.08 per cent, while the industrial goods sector closed flat.
At the close of business, the All-Share Index (ASI) tumbled by 79.68 points to 105,451.06 points from 105,530.74 points and the market capitalisation retreated by N48 billion to N64.303 trillion from N64.351 trillion.
Yesterday, investors traded 1.5 billion shares worth N19.4 billion in 12,877 deals compared with the 489.5 million shares worth N13.1 billion transacted in 13,010 deals in the preceding day, indicating a decline in the number of deals by 1.02 deals and a rise in the trading volume and value by 203.14 per cent and 48.09 per cent, respectively.
Wema Bank was the busiest stock with 976.2 million units valued at N9.8 billion, Tantalizers traded 53.0 million units worth 129.6 million, Universal Insurance sold 34.8 million units for N26.8 million, Access Holdings exchanged 33.9 million units valued at N843.8 million, and Nigerian Breweries traded 27.3 million units worth N873.3 million.
The heaviest loss was suffered by Sunu Assurances with a decline of 9.99 per cent to trade at N7.30, Eunisell shed 9.96 per cent to N17.35, SAHCO crumbled by 9.87 per cent to N30.15, DAAR Communications plunged by 9.28 per cent to 88 Kobo, and Sovereign Trust Insurance went down by 7.04 per cent to N1.32.
On the flip side, C&I Leasing gained 10.00 per cent to close at N4.51, Honeywell Flour appreciated by 9.99 per cent to N10.02, Trans Nationwide Express jumped by 9.89 per cent to N2.00, RT Briscoe rose by 9.83 per cent to N2.57, and Secure Electronic Technology grew by 9.46 per cent to 81 Kobo.
Business Post reports that the bourse ended with 33 price gainers and 25 price losers, indicating a positive market breadth index and strong investor sentiment.
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