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 NASD Over-the-Counter (OTC) Securities Exchange closed flat on Wednesday, August 5, as the market witnessed weaker trading activity with only two deals executed.
In the midweek session, the volume of securities exchanged by investors dropped 99.9 per cent to 802 units from the 1.6 million units recorded on Tuesday. The value of securities further decreased by 99.6 per cent to N208,240 from the preceding session’s N47.6 million, and the number of deals significantly went down by 93.9 per cent to two deals from the 33 deals recorded a day earlier.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 76.9 million units transacted for N5.5 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
There were no price gainers or losers yesterday.
As a result, the market capitalisation stood unmoving at N2.739 trillion, while the NASD Security Index (NSI) remained unchanged at 4,563.96 points.
By Adedapo Adesanya
The Naira slid against the US Dollar by N2.28 or 0.17 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, August 5, to N1,363.85/$1 from N1,362.55/$1.
The local currency also declined against the Pound Sterling in the official market during the session by N5.97 to close at N1,837.38/£1 compared with Tuesday’s closing rate of N1,831.41/£1, and against the Euro, it crashed by N6.54 to quote at N1,575.25/€1 versus the preceding session’s N1,568.71/€1.
But at the black market, the Nigerian Naira traded flat against the greenback yesterday at N1,400/$1, and also remained unchanged at the GTBank FX desk at N1,373/$1.
The Central Bank of Nigeria (CBN) says rates have narrowed to below two per cent, while the country’s external reserves have risen above $52.5 billion, reflecting the impact of its ongoing monetary and foreign exchange reforms.
CBN Governor Yemi Cardoso, represented by the Acting Director of Corporate Communications and Investor Relations, Mrs Hakama Sidi-Ali, disclosed this on Tuesday during the CBN Fair in Gombe. He noted that reforms introduced since 2023 had significantly reduced the disparity between the official FX market and the parallel market.
“The Naira continues to strengthen, with the spread between official and Bureau de Change rates now below two per cent,” he said, adding that reserves at $52.5 billion were supported by sustained inflows and renewed investor confidence in the economy.
Interbank FX transactions slid as weaker market activities dropped total Dollar volume exchanged to $75.35 million, a 51.8 per cent decline from $156.23 million in turnover quoted at the previous close.
The deals at the NFEM window also fell as data from the central bank put Wednesday’s quote at 82 from 139.
In the cryptocurrency market, major were down as global risk sentiment softened as a key world equity index slipped and chipmakers fell.
The MSCI All Country World Index snapped a five-day run to fall 0.2 per cent as chipmakers retreated on both sides of the Pacific. South Korea’s Kospi, a bellwether for the AI trade, dropped 4.4 per cent.
Ripple (XRP) depleted by 1.7 per cent to $1.05, Binance Coin (BNB) decreased by 1.0 per cent to $594.87, Cardano (ADA) depreciated by 0.9 per cent to $0.1884, TRON (TRX) shrank by 0.2 per cent to $0.3261, Solana (SOL) crumbled by 0.1 per cent to $74.00, and Dogecoin (DOGE) went down by 0.1 per cent to $0.0697.
On the flip side, Ethereum (ETH) gained 2.3 per cent to trade at $1,911.41, and Bitcoin (BTC) rose by 0.8 per cent to $64,759.28, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The domestic stock exchange rebounded by 0.05 per cent on Wednesday on the back of renewed bargain-hunting by investors, though the level of activity waned.
After bleeding for a few days, the Nigerian Exchange (NGX) Limited heaved a sigh of relief yesterday, as the All-Share Index (ASI) gained 109.41 points to close at 244,912.24 points compared with the previous day’s 244,802.83 points, and the market capitalisation garnered N71 billion to settle at N158.087 trillion versus Tuesday’s N158.016 trillion.
Business Post reports that despite the rebound recorded by Customs Street at midweek, the market breadth index remained negative, as there were 20 price advancers and 29 price decliners, implying bearish investor sentiment.
Linkage Assurance appreciated by 9.94 per cent to N1.77, AVA Capital rose by 9.55 per cent to N10.90, Fortis Global Insurance advanced by 7.69 per cent to N2.80, McNichols gained 7.34 per cent to finish at N5.85, and Coronation Insurance surged by 5.51 per cent to N2.49.
Conversely, Honeywell Flour depreciated by 9.94 per cent to N16.30, PZ Cussons gave up 9.94 per cent to trade at N74.75, Zichis crashed by 9.74 per cent to N20.76, Learn Africa slipped by 9.62 per cent to N9.40, and Neimeth tumbled by 8.33 per cent to N8.25.
The busiest equity was FCMB, with a turnover of 369.2 million units valued at N4.1 billion. Chams transacted 46.7 million units worth N201.8 million, First Holdco transacted 43.5 million units for N5.7 billion, Access Holdings sold 29.8 million units worth N778.0 million, and Linkage Assurance exchanged 19.6 million units valued at N33.5 million.
At the close of transactions, market participants bought and sold 824.1 million units worth N25.5 billion in 48,114 deals, in contrast to the 1.6 billion units sold for N28.7 billion in 54,160 deals a day earlier, showing a shortfall in the trading volume, value, and number of deals by 48.49 per cent, 11.15 per cent, and 11.16 per cent, respectively.
