May 25, 2021/Cowry Asset Report
In FY 2020, UBA’s performance score was 73.08% in its industry (for which we assigned a “BB” performance rating); and given its consistent positive performance with a long-term average rating of “BB” as well as an upside potential of 29.25% on its share price, we recommend a “BUY”.
UBA Sustains Positive Performance for the 7th Consecutive Year
UBA’s financial performance in FY 2020 was quite impressive given the recorded increase in all its income lines. The bank which continues to position itself as a leading Pan-African bank,
successfully grew its profit after tax (PAT) for the seventh consecutive year. Specifically, United Bank for Africa (“UBA” or “the Bank”) grew its gross earnings year-on-year (y-o-y) by 10.82% to N620.38 billion in FY 2020. Also, it interest income increased y-o-y by 10.82% to N427.86 billion in 2020, from N404.83 billion in 2019 amid increasing loans to customers.
Notably, net interest income which rose by 16.94% y-o-y to N259.47 billion in FY 2020 from N221.88 billion in FY 2019, was supported by a 7.96% y-o-y decline in interest expense – despite
the significant rise in customer deposit base – to N168.40 billion amid low yield environment. Perusing the non-interest income figures, we saw net fee and commission income rise y-o-y by
3.25% to N82.6 billion even as net trading and foreign exchange income increased y-o-y by 57.96% to N59.45 billion in FY 2020.
On the cost side, operating expenses surged by 15.05% to N249.85 billion due to higher staff costs and maintenance costs.
Nonetheless, with the all-round increase in the income lines (which drove cost to income ratio lower to 64.08% from 67.42%) and under-tax provision (which eased to N18.09 billion, from
N22.20 billion despite the recorded rise in Profit Before Tax), profit after tax ballooned y-o-y by 27.70% to N113.77 billion in FY 2020.
UBA Takes Conservative Stance on Dividend Payout in 2021…
In an unexpected move UBA lowered its cash reward to investors as it reduced the total dividend payout by almost 50% to N0.52k in FY 2020 from N1.00k which it paid in FY 2019. The
conservative dividend payout was despite the positive performance it printed in the year under review. According to the bank, Management took a conservative approach to retain cash
in order to further strengthen its capacity to deliver better returns amid COVID-19 pandemic uncertainties.
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