United Bank for Africa (UBA) Plc is the most active stock at the stock market. Against the background of the recent release of the bank’s latest audited results, UBA has seen a pattern of activities that suggests positive investors’ perception. In this report, Deputy Group Business Editor, Taofik Salako, examines the relationship between the operational and market reports and the bank’s positioning in the ongoing recapitalisation of the banking industry
United Bank for Africa (UBA) Plc has been the most active stock at the Nigerian stock market in recent period. Last week, it led the market to a 15 per cent growth in turnover with a steady pricing trend that’s above average market’s trend and peers’ performances.
Globally, volume of activities is indicative of a stock’s ranking and a measure of investors’ perception or reaction. In markets’pricing mechanism, change in stock price is tied to volume, thus turnover of activities underlines the resilience of a stock or the entire stock market, especially during a bearish period.
Trading itself is determined by three main factors of a corporate’s fundamentals-the cold operational facts, professionals’ viewpoints and investors’ perception of believability of the entirety of a corporate’s status. These intermix in different ways to form a distinctive reading at every point. Professional or experts’ viewpoints are important given that most high networth investors (HNIs) and institutional investors- like fund managers use the indepth analysis and expert assessment in their investment decision-making process. Believability is about the past and current figures and the emotional buildup thereof. These factors are playing out positively for UBA.
There’s an analysts’ consensus on remarkable growths in UBA’s operations and results. Independent investment advisory reports are conclusive about the upside potential of the bank. Against the background of the latest audited report and accounts, analysts are staking a “buy” recommendation on the bank, with several reports placing the stock atop the prospective return table for its sector and within the highest in the market.
In one of the reports, Coronation Asset Management analysed three of Nigeria’s five largest banks’ latest results. In the report released at the weekend, the analysts at Coronation Asset Management highlighted UBA’s “robust revenue growth” and its “impressive top-line and bottom-line earnings” and concluded that it has the highest upside potential among its peers. This conclusion was the basis for the investment advisory firm’s “buy” rating. According to the analysts, UBA’s share price could rise by more than 46 per cent, making it one of the best inflation-hedging assets for individual and institutional investors.
Analysts at CardinalStone were more bullish about the bank. Highlighting UBA’s financial results, the analysts placed the bank’s upside potential at more than 82 per cent. CardinalStone said the bank’s “strong financial outing” underlined a positive outlook. FSDH Capital was equally positive about the bank, referring to its “blockbuster results amid a challenging macroeconomic backdrop”.
A report on the five largest banks – euphemistically referred to as FUGAZ, showed that UBA has the highest profit, when the bottom-line is thoroughly shaken down; stripped of extraordinary items such as derivative gains, foreign exchange (forex) revaluation gain and fair value on AFC. Where some peers were either with negative or extremely low normalised profit after tax, UBA’s normalised profit net earnings was a quarter above its significant dividend payout. The board of the bank had recommended 155 per cent increase in dividend payout for the 2023 business year. Shareholders will receive a final dividend of N2.30 per share, bringing total dividend per share for the 2023 business year to N2.80 as against N1.10 paid for the 2022 business year.
Financial results
Key extracts of the audited report and accounts of UBA for the year ended December 31, 2023 released at the Nigerian Exchange (NGX) showed significant growths across all key performance indicators.The results showed an increasingly profitable and stronger bank, with the actual figures and underlying ratios recording strong growths.
Gross earnings rose by 143 per cent from N853.2 billion in 2022 to N2.08 trillion in 2023. Profit before tax jumped by 277 per cent to N758 billion in 2023 as against N201 billion in 2022. Profit after tax grew by 257 per cent from N170 billion in 2022 to N608 billion in 2023. Earnings per share thus rose by 262 per cent from N4.84 in 2022 to N17.49 last year.
The top-line performance was driven by three-digit growths across the interest and non-interest incomes as well as growths in the Nigerian and other markets where the bank operates. Interest income rose by 93 per cent while non-interest income grew by 314 per cent. The results showed a banking group with diverse and supportive market growths, thus its resilience to specific market shocks. While the Nigerian business grew by 149 per cent, the “rest of Africa” rose by 135 per cent and contributions from the “rest of the world” jumped by 234 per cent. All the business segments also reported significant improvements in profitability.
The bank’s balance sheet also emerged stronger. Total assets rose remarkably by 90.22 per cent, doubling the N10 trillion mark, to close 2023 at N20.65 trillion, up from N10.86 trillion in 2022. This is a milestone in the history of the group. Consequently, UBA Group’s shareholders’ funds rose from N922 billion to N2.0 trillion, an impressive growth of 120.2 per cent.
Notably, UBA recorded a 61.3 per cent growth in loans to customers, moving up to N5.5 trillion in 2023, whilst customer deposits improved by 90.31 per cent to N14.9 trillion, compared to N7.8 trillion recorded in the corresponding period of 2022. The bank attributed this to increased customer confidence, enhanced customer experience, successes from the ongoing business transformation programme and the deepening of its retail banking franchise.
Beyond the surface, the bank’s ratio were stronger. Group cost-to-income ratio dropped from 59.2 per cent in 2022 to 37.2 per cent in 2023, underlining improvement in overall corporate efficiency. Capital adequacy ratio (CAR) improved from 29.6 per cent to 32.6 per cent, more than a double of the regulatory limit of 15 per cent. Investors’ returns were also remarkable. Return on assets doubled from 1.8 per cent to 3.9 per cent. Return on equity also doubled from 19.7 per cent to 41.2 per cent. The dividend yield is above 10 per cent, within the top bracket for high-yielding stocks.
Analysts’ reports
FSDH Capital stated that UBA “posted solid financial results for 2023 despite soraing inflation and currency depreciation ravaging markets amidst pockets of regional conflicts and security challenges”. The report noted that the group’s “revenue growth was visible across all segments, with treasury and financial markets segment revenues increasing 207.2 per cent to N498.2 billion in 2023 as against N162.2 billion in 2022”.
The growth in loans and advances was mainly driven by the retail and commercial segment, which grew by 180.4 per cent. The report highlighted that the non-interest income growth was driven by higher electronic banking income, funds transfer fees, commissions on transactional services and credit-related fees and commissions, underlining the group’s nimble and growing digital market space.
CardinalStone pointed out robust growth in interest-funded income, with net interest income rising by 86.4 per cent to N707.5 billion in 2023.
Coronation Asset Management explained that “improvements in earnings were supported by net interest income, driven by increases in earnings from investment securities and customer loans” while “revenues from trading and foreign exchange income also supported earnings, hinged on fair value gains on derivatives and foreign exchange trading income”. The report pointed out that fees and commission income crossed the N300 billion mark for the first time, “supported by electronic banking income, commission on transactional services, and credit-related fees and commissions”. However, the group’s non-performing loans ratio rose to 5.9 per cent in 2023 as against three per cent in 2022.
“UBA’s earnings, like its peers, were largely impressive, in our view. Looking ahead, we expect the rise in market yields to support interest earnings. For 2024, the group has guided for an improved net interest margin of 7.5 per cent,” Coronation Asset Management stated.
Management insight
Group Managing Director, UBA Plc, Oliver Alawuba said the unprecedented results showed the success and resilience of the group’s diversified business model.
He pointed out that the bank’s diversified business model, based on pan-African and international strategy, has been further justified by the contribution of its Ex-Nigeria business to the group’s results.
According to him, the results reinforce the group’s resolve to expand its market share of customers, funding, digital and transaction banking businesses across Africa.
“Driven by our customer service and execution-led delivery model, we will continue to expand our market share and create value for our shareholders and meet the expectations of our various stakeholders,” Alawuba said.
Outlining strategies aimed at navigating the dynamic and ever-evolving banking landscape while consolidating the group’s growth in the year, Alawuba assured domestic and international investors during the bank’s investors’ conference call that the bank would continue to focus on regulatory compliance and sustainable value creation as it sustains current growth momentum and enhanced shareholders’ confidence.
According to him, based on the bank’s strategic business investments, UBA remains on the trajectory of achieving and even surpassing its targets for the current financial year, with its strong diversity across Africa and beyond giving it much-needed edge to serve its customers and outflank competition.
Addressing the sticky point of asset quality, Alawuba explained that the bank would employ proactive credit monitoring, restructuring strategies for at-risk loans, and increased provisioning coverage to ensure the group keeps non-performing loans at the barest minimum, while substantially growing its loans portfolio, despite the high uncertainties in the markets.
“We expect to keep non-performing loans (NPLs) at 4.5 per cent for the 2024 full year. This commitment to credit quality is to further strengthen our ability to support our customers, protect shareholders’ value while contributing to overall economic activity, even in a dynamic economic environment,” Alawuba said.
Executive Director, Finance & Risk Management, UBA, Ugo Nwaghodoh, outlined that group set up significant impairment reserves against its overall risk assets portfolio considering the latent impact of the macroeconomic headwinds on its credit portfolio. Consequently, cost of risk grew to 3.09 per cent from 0.63 per cent in the prior year.
On the group’s outlook, Nwaghodoh said the bank is confident of an even better performance in the 2024 financial year, citing its growing investments, both in technology and IT security and other measures aimed at strengthening the group’s competitive advantages.
“The group remains fervently committed to sustainable growth and maintaining its strong compliance and risk management practices culture even as we drive our business through the next phase of growth,” Nwaghodoh stated.
Recapitalisation
Despite its N2 trillion shareholders’ funds, Central Bank of Nigeria (CBN)’s distinctive definition of new minimum capital base as share capital and share premium implies that UBA, like other banks, will have to raise new equity funds. Shareholders of the bank are scheduled to meet next month at their annual general meeting to consider and approve a multi-tranche, multi-instrument capital raising programme that allows UBA to raise more than necessary to surpass the new minimum capital base of share premium and share capital of N500 billion stipulated by the CBN for its category of commercial bank with international authorisation.
The bank plans to increase its share capital from N17.1 billion of 34.2 billion ordinary shares of 50 kobo each to N22.5 billion of 45 billion shares through the creation of 10.8 billion new ordinary shares of 50 kobo each. The broad mandate will empower the board to create additional shares, determine appropriate combination of instruments and markets, underwrite the offers and waive the rights of shareholders in offering unallotted shares to new investors.
Alawuba noted that as it stands, UBA remains among the top capitalised banks, adding that the bank is actively exploring a well-defined strategy to boost its capital base and ensure compliance within the regulatory time frame.
“This strategy may include a combination of options such as rights issue or private placement. The fact remains that we are confident in our ability to meet the CBN’s capital requirements and will keep investors informed as we progress.
“I want to reiterate that, UBA is very well capitalised with shareholders’ fund in excess of N2 trillion. We will in due course, raise the required component of capital in line with the CBN directive,” Alawuba said.
The past history of growths, the much-applauded performance in 2023, believability of its brand essence and the clarity of its recapitalisation plan are the factors that will shape UBA’s trajectory as banks reemerge from the evolving macroeconomic dynamics.
