March 23, 2018/Cordros Report

• United Bank for Africa Plc (UBA) released its FY-2017 results, showing  growth in top and bottom line items – Gross earnings (+20.31% to NGN461.56 billion) and PAT (+8.75% to NGN78.59 billion) – but missing our estimates by 2.24% and 3.64% respectively. Against Bloomberg’s polled estimates, pre-tax profit was 5.47% higher, while post-tax profit was 1.22% short.

• Net interest income was 25.69% higher than the previous year’s at NGN207.63 billion, as interest income (+23.37% to NGN325.66 billion) grew at a faster pace than interest expense (+19.49% to NGN118.03 billion).

• Accordingly, NIM improved by 51 bps to 7.61% (higher than our 7.10% forecast). This was supported by 59 bps improvement in asset yield to 11.94%; whereas, cost of funds declined by 3 bps to 3.70%.

• NIR also increased during the year by 12.53% to NGN118.93 billion, owing to growths in Net fee and commission income (+11.42% to NGN65.97 billion), Net trading income (+11.96% to NGN49.06 billion), and other income (+46.79% to NGN3.90 billion).

• Loan impairment charges rose by 18.83% during the year to NGN32.90 billion. As a result, the cost of risk increased by 16 bps to 2.01% – coming 46 bps higher than our estimates.

• Opex was also higher by 23.68% at NGN188.61 billion (4.53% lower than we estimated), with a cost-to-income ratio of 57.76%, coming 146 bps higher than last year, but 266 bps lower than our forecast.

•  While pre-tax profit increased by 16.13% to NGN105.26 billion, higher effective tax rate (+506 bps) of 25.34%, drove a slower growth in the post-tax profit (+8.75%) of NGN78.59 billion.

• In the last quarter of the year (Q4-17), improvements in key income lines – interest income (+5.32% q/ and +8.13%y/y), fee and commission income (+16.96% q/q ad +47.50%y/y), net trading income (+136.01%q/q and -24.89%) – supported growth in Gross earnings (+14.81%q/q and +8.07%y/y).

• Net interest income (+8.67%q/q and +4.16%y/y) grew to NGN55.34 billion, with interest income (+5.32%q/q and +8.13%y/y) and interest expense (+0.03% q/q and +15.71% y/y) increasing to NGN325.66 billion and NGN118.03 billion respectively.

• Upturns in net fee and commission income (+9.79% q/q and +34.53% y/y) and trading income (+136.01% q/q, -24.89% y/y), muted the marginal decline in other income (-0.45% q/q and -39.02% y/y), causing the NIR to increase to NGN34.33 billion (+41.83% q/q and -0.49% y/y).

• Provision for loan impairment surged 476.30% from the previous quarter to NGN19.99 billion (+7.54% y/y).

• Opex was 15.69% lower from the previous quarter at NGN42.91 billion (+7.38% y/y), driven by the decline in other operating expenses (-27.06% q/q and +14.88% y/y).

• Tax charge for the quarter surged by 318.84% q/q to NGN9.27 billion (+1.95% y/y), causing PAT to decline by 4.90% q/q to NGN17.67 billion (-11.59% y/y), from a PBT of NGN26.94 billion (+29.55% q/q and -7.36% y/y).

• A final dividend of NGN0.65 was declared, bringing total dividend for the year to NGN0.85/share (2016: NGN0.75/share).

Overall, we find UBA’s performance fair, as key line items – particularly the gross earnings and PAT – showed time-relative improvements, and broadly in line with expectations. We expect muted reaction in trading on Monday.