June 11, 2026/Cordros Report
In this update, we present our 2026E outlook for United Bank for Africa Plc (UBA) following the release of its 2025FY and Q1-26 results. We revise our target price downward to NGN55.51/s from NGN60.60/s, primarily reflecting the marked deterioration in asset quality, which significantly weakened the group’s capital buffers (2025FY CAR: -780bps to 23.2%) and moderated our growth expectations. The combination of subdued loan growth expectations (+8.0% y/y) and expected elevated impairment charges has weighed on previous sentiments, resulting in a lower 12 month valuation. We assume no interim dividend and a final dividend of NGN2.60/s (payout ratio: 15.0%), contingent on meaningful progress in resolving asset quality concerns during 2026FY. Based on our 2026E estimates, the stock is expected to trade at 0.4x P/BV and 2.5x P/E.
We expect earnings rebound: We forecast UBA’s gross earnings to grow by 15.6% y/y to NGN3.57 trillion in 2026E, supported by moderate accretion in core income (+7.0% y/y) and a meaningful recovery in non-interest income (+67.0% y/y). Interest income is projected to rise by 7.0% y/y to NGN2.83 trillion, supported by expansion in investment securities income (+7.7% y/y) and a marginal growth in income from customer loans (+1.0% y/y). Interest expense is expected to increase by 9.3% y/y to NGN1.13 trillion, driven by elevated funding costs, resulting in net interest income growing by a modest 5.6% y/y to NGN1.71 trillion, while NIM is expected to compress to 7.0% (2025FY: 7.3%). We expect impairment charges to remain elevated but decline by 37.3% y/y to NGN207.85 billion, translating to a cost of risk of 2.5% (2025FY: 4.2%). We expect recovery in non-interest income, growing by 67.0% y/y to NGN736.24 billion, underpinned by fee income growth of 17.2% y/y and a recovery in trading and FX income from an exceptionally weak base in 2025FY. Combined with controlled cost growth (+8.3% y/y), this drives a CIR of 52.9% (2025FY: 59.4%) and PAT growth of 75.8% y/y to NGN711.34 billion.
Rising credit stress weakens capital position: UBA did not declare a final dividend for the 2025FY, a direct consequence of asset quality deterioration that pushed the NPL ratio to 7.7%, its highest level in over 8 years. This was largely driven by a sharp increase in Stage 3 corporate loans, which more than doubled from NGN118.41 billion to NGN310.86 billion. This underscores mounting corporate credit stress and exerted considerable pressure on both provisioning requirements and capital adequacy. Consequently, CAR declined materially by 780bps to 23.2%, driven primarily by a 77.7% expansion in credit risk-weighted assets to NGN11.54 trillion. Looking ahead, we maintain a conservative dividend outlook, forecasting no interim dividend in 2026E and a final dividend of NGN2.60/s. We expect any meaningful dividend recovery to remain dependent on a sustained improvement in asset quality metrics and a rebuild of capital buffers to more comfortable levels. As impairment charges moderate and profitability gradually recovers, we project payout ratios to normalize toward 20.0% from 2027E onwards.
Valuation: Our TP of NGN55.51/s is derived from a weighted blend of a Dividend Discount Model (DDM) at a 70.0% weight and a Gordon Growth Model (GGM) at a 30.0% weight. Under the DDM, applying a cost of equity of 26.4% and a payout ratio rising from 15.0% in 2026E to 20.0% from 2027E, we arrive at an implied value of NGN50.45/s. The GGM, anchored on a 26.4% COE and a 5-year average RoE of approximately 15.5%, yields a valuation of NGN67.30/s.
