September 9, 2022/Cordros Report
UBA released its H1-22 audited financials yesterday, reporting an EPS growth of 17.1% to NGN1.98/s (H1-21: NGN1.69/s), supported by strong growth in core and non-core income. An interim dividend of NGN0.20/share (same as the corresponding period last year) was proposed for the period, representing a dividend yield of 2.7% based on the previous closing price of NGN7.30 (8 September).
The bank’s interest income rose by 15.6% y/y to NGN257.36 billion, underpinned by income from the major line items. Notably, the income from investment securities rose by 21.6% y/y, reflective of the higher yield environment. Likewise, the income from loans and advances to banks and customers advanced by 27.7% y/y and 11.2% y/y, respectively.
Further down, interest expense expanded by 7.2% y/y to NGN79.90 billion as the bank incurred higher costs on its deposit from customers (+29.5% y/y to NGN54.96 billion), with its low-cost deposits base deteriorating during the period (CASA – H1-2022: 84.4% vs 2021FY: 86.6%). On the other hand, there was a moderation in the cost of debt (-29.7% y/y to NGN25.07 billion) following the reduction in the bank’s interest-bearing borrowings (-10.7% YTD to NGN406.81 billion). Consequent to the faster interest growth in income relative to expense, the bank recorded an expansion in net interest income (+19.9% y/y). All in, net interest income ex-LLE expanded by 17.5% y/y to NGN169.13 billion.
Similarly, the bank recorded a 22.0% y/y increase in non-interest income (NII) to NGN78.52 billion, supported by the significant gains from trading of investment securities (+624.2% y/y to NGN14.19 billion), FX revaluation (+173.3% to NGN2.08 billion) and net fees and commission income (+30.9% y/y to NGN59.92 billion).
Operating expenses increased by 21.9% y/y, as all contributory items increased during the period – NDIC premium (+23.7% y/y to NGN8.79 billion), personnel expenses (+21.9% to NGN161.90 billion), depreciation and amortization (+13.8% to NGN13.04 billion) and AMCON levy (+12.1% y/y to NGN31.18 billion). Consequently, the bank’s OPEX (+21.9% y/y) advanced faster than operating income, leading to a decline in operational efficiency – the cost-to-income ratio (ex-LLE) settled higher at 65.5% relative to 63.8% in the prior year.
Overall, profit before tax grew by 12.6% y/y to NGN85.75 billion. Following a lower income tax expense (-1.2% y/y), profit after tax printed NGN70.33 billion (H1-21: NGN60.58 billion), translating to a growth of 16.1% y/y.
Comment: UBA’s financial performance is impressive, given the inflationary pressures during the period. We view the bank’s ability to sustain strong growth in core and non-core income as very positive; therefore, we remain optimistic that the bank will maintain a positive growth trajectory throughout the year. Our estimates are under review.
