May 8, 2025/Cordros Report
In Q1-25, UBA recorded a 37.3% y/y growth in gross earnings driven by growth across both core (+36.1% y/y) and non-core (+44.2% y/y) income. Looking ahead, we revise our gross earnings forecast upward (2025E: +26.7% y/y | previously: +23.4% y/y), underpinned by a 24.7% y/y and 31.2 y/y% growth in core and non-core earnings, respectively. We reiterate our positive view on the group’s Non-Interest Income (NII) profile, given the strong contribution of sustainable income lines such as fees and commission income. Subsequently, we increase our TP by 1.5% to NGN58.28/s (previously: NGN57.42/s) and maintain our “BUY” rating. We project a final DPS of NGN5.10/s in 2025E, translating to a dividend yield of 14.8% based on the last closing price of NGN34.50/s (7 May). On our estimates, UBA is trading at a 2025E P/E of 2.7x and P/B of 0.5x.
We Expect Sustained Core Income Growth: For 2025E, we model a 24.7% y/y growth in core earnings. We attribute the preceding to (1) the still elevated interest rates, (2) our projections of a 28.2% y/y growth in earning assets, and (3) the group’s diversified operations amid likely rate cuts during the year. We believe UBA’s international operations will continue to provide support for sustained topline growth. Additionally, with forbearance loans declining to 5.0% as of 2024FY (2023FY: 20.0%), we expect a moderation in provisioning, resulting in a lower CoR of 3.0% (2024FY: 3.2%). Non-interest income should also expand, driven by a 26.7% y/y increase in net fees and commission. Further out, we project operating income and OPEX to grow by 25.3% y/y and 14.8% y/y, respectively, translating to an improved cost-to-income ratio of 51.1% in 2025E (2024FY: 55.7%). Consequently, we expect PBT to grow by 39.1% y/y, while PAT grows slower by 16.7% y/y owing to the absence of the NGN181.92 billion tax credit in 2024FY. Overall, EPS is projected to grow modestly by 0.3% y/y to NGN21.80, reflecting the impact of 6.84 billion additional shares.
Improved Cost Efficiency to Support Profitability: Despite the surging costs that led to deterioration in cost-to-income ratio (CIR) across the industry, UBA recorded an improvement in its CIR to 52.9% in Q1-25 (Q1-24: 57.8%) following the faster growth in operating income (+19.9%) compared to operating expenses (+12.3% y/y). The faster growth in operating income stemmed from the contribution from net fees and commission income (+15.7% y/y) and gains on investment securities (+230.6%) amid the decline in its ‘other operating expenses’ line (-1.0% y/y). We expect this to be positive for the group, supporting overall profitability growth.
Valuation: Our year-end target price is NGN58.28/s, derived from a blend of the Dividend Discount Model (60.0%), Gordon Growth Model (30.0%), relative P/E (5.0%) and relative P/B (5.0%) valuation methods. Assuming a 32.0% CoE and a forecasted dividend payout ratio of 23.4%, our DDM TP amounted to NGN55.85/s. For GGM, we maintained CoE at 32.0% and utilised an average RoE of 18.5%, deriving a TP of NGN69.38/s. On relative P/E, we utilised the tier-1 forward average P/E of 1.5x and applied it to our 2025E EPS estimate of NGN21.80/s to derive a TP of NGN32.27/s. Lastly, for relative P/B, we estimated forward book value per share of NGN113.57/s – tier 1 peer average P/B of 0.4x – and derived a fair value estimate of NGN46.85/s.
