Culled—Proshare
October 16, 2017/FBNQuest
Event: United Bank for Africa (UBA) reports Q3 2017 results
Implications: Limited revisions to consensus PBT forecasts; Neutral reaction from the market
Positives: Loan loss provisions were well below our expectations
Negatives: Opex grew 25% y/y
This morning UBA published its Q3 2017 results which showed that PBT declined by -14% y/y to N20.8bn. The key drivers behind the y/y decline in earnings were a 25% y/y rise in opex and 52% y/y increase in provisions for loan losses. Although pre-provision profits grew by 12% y/y, the negatives on those two lines proved significant. In terms of the revenue split, non-interest income was the major driver of the expansion in pre-provision profits.
However, funding income was also up by 6% y/y. Moving down the P&L, the decline on the PAT line was greater at 26% y/y, because of a 35% y/y increase in income taxes and base effects on the OCI line. Sequentially, PBT fell by 35% q/q. In contrast to the y/y trends, the non-interest income line declined by -39% q/q (because of base effects) and drove the marked decline in PBT.
The weakness on the non-interest income line also led to a 16% q/q drop in pre-provision profits. Compared with our forecasts, PBT missed by 15%. This was primarily due to a negative surprise in opex (+11% more than what we were modelling).
We note that UBA’s opex was also up, by around 20% y/y, in Q2 2017. Given the persistent rise in opex, we expect this line to come under scrutiny by investors. In terms of balance sheet trends, UBA’s loan book and deposits grew by 2% q/q and 3% q/q respectively, better than the 1% and -6% respectively in Q2.
UBA’s 9M PBT of N78bn tracks broadly in line with consensus PBT forecast of N103bn for 2017. As such, we expect to see limited revisions to consensus earnings estimates and a broadly neutral reaction from the market.
We rate UBA Neutral. Our estimates are under review.
UBA Q3 2017 results: actual vs. FBNQuest Research estimates (N millions)
| Actual | Y/y | Q/q | FBNQuest est. | Actual vs FBN Quest est. (%) | Actual | Y/y | FBNQuest est. | Actual vs FBN Quest est. (%) | |
| Interest income | 83,138 | 10.0% | 6.3% | 82,230 | 1.1% | 238,092 | 30.1% | 237,184 | 0.4% |
| Interest expense | -32,220 | 16.6% | 13.5% | -28,587 | 12.7% | -85,795 | 21.0% | -82,162 | 4.4% |
| Net interest income | 50,918 | 6.2% | 2.3% | 53,642 | -5.1% | 152,297 | 35.9% | 155,021 | -1.8% |
| Other income | 24,205 | 26.5% | -38.6% | 23,382 | 3.5% | 84,603 | 18.8% | 83,780 | 1.0% |
| Profit before provisions | 75,123 | 12.0% | -15.8% | 77,024 | -2.5% | 236,900 | 29.3% | 238,801 | -0.8% |
| Provisions | -3,468 | 52.3% | -45.3% | -6,637 | -47.7% | -12,909 | 41.9% | -16,078 | -19.7% |
| Share of profit in JV and assoc. | 34 | n/a | n/a | -16 | n/a | 33 | n/a | -17 | -292.4% |
| Operating expenses | -50,895 | 24.9% | 0.2% | -46,002 | 10.6% | -145,699 | 26.4% | -140,806 | 3.5% |
| PBT | 20,794 | -13.5% | -35.1% | 24,370 | -14.7% | 78,325 | 33.2% | 81,901 | -4.4% |
| Tax | -2,213 | 35.2% | -81.7% | -2,924 | -24.3% | -17,405 | 87.4% | -18,116 | -3.9% |
| -Tax rate | 10.6% | 12.0% | 22.2% | 22.1% | |||||
| Discontd ops | 0 | n/a | 0 | n/a | 0 | n/a | 0 | n/a | |
| Other comprehensive income | 3,704 | -70.8% | n/a | 0 | n/a | 14,581 | -78.8% | 10,877 | 34.1% |
| PAT before min. Interest | 22,285 | -36.5% | -24.0% | 21,445 | 3.9% | 75,501 | -36.2% | 74,661 | 1.1% |
| Minority interest | -1,743 | -76.3% | n/a | -122 | n/a | -3,171 | n/a | -1,550 | 104.6% |
| PAT after minority interest | 20,542 | -25.9% | -29.2% | 21,324 | -3.7% | 72,330 | -32.8% | 73,112 | -1.1% |
Source: NSE; FBNQuest Estimates
