Culled—Proshare

Event: United Bank for Africa (UBA) reports Q3 2016 results

Implications: Slight positive reaction by the market likely

Positives: Q3 PBT up 16% y/y, 18% ahead of our estimate

Negatives: Limited to opex growing 25% y/y, surprising negatively by 27%

UBA’s Q3 2016 results which were released this morning shows a relatively decent quarter for the bank. Q3 2016 PBT grew 16% y/y to N21.3bn. Although Q3 PAT was larger at N25bn, thanks to continued strong results (N12.7bn) on the other comprehensive income line (translation gains on foreign subsidiaries and mark to market gains on available for sale instruments), the growth was similar to that on the PBT line at 16% y/y.

The earnings growth was supported by healthy performances in both funding and non-interest income, with y/y growth rates of 27% and 13% respectively. No doubt fx devaluation impact made an impact, boosting these growth rates. The q/q loan growth of 19% in the quarter most likely can be explained by continued naira devaluation.

The growth rates in both funding and non-interest income more than offset (i) a 55% y/y in loan loss provisions and a 25% y/y rise in operating expenses to N43.5bn. The 55% growth in loan loss provisions was flattered by base effects: UBA is still on course to end the year with a cost of risk below 1.5% (guidance is 1%).

The opex growth is the one negative that stood out in the results. On a q/q basis, it rose 18%; note that in Q3 the opex line had surprised negatively too, having grown 15% q/q. We would be looking forward to management for some comments/clarity on this development. This strong opex growth largely explains why PBT was down -4.1% q/q.

Although funding income grew strongly, by 61% q/q, non-interest income saw a marked pull back (after an extremely strong Q2; as such the pull back was expected) to leave profit before provisions up only 3% q/q.

Loan loss provisions also fell sharply q/q, by -61% (again flattered by base effects) but the impact of the opex growth proved significant. PAT fell -65% q/q because other comprehensive income was weaker q/q and minorities grew strongly.

Relative to our forecasts, while PBT was ahead by 18%, largely due to funding income, PAT missed by 13%. The latter was purely down to minorities surprising negatively. We had forecast just N543m for minorities; the reported figure was N7.3bn. Excluding the minorities line, PAT beat our forecast by 11%.

The results put UBA well on track to meet consensus’ N72bn full year 2016 PBT estimate at the very least. The Q4 loan loss provisions figure is likely to be higher than the average run-rate for 9M.

However, we do not expect this to lead to UBA disappointing relative to consensus. We expect modest changes to consensus estimates on the back of these results. Our estimates are under review. We rate UBA shares Outperform.

UBA Q3 2016 results: actual vs. FBNQuest Research estimates (N millions)