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UBA Rated ‘Buy’ on Higher Earnings Expectation

UBA
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June 18, (THEWILL) – For the financial year 2022, equity analysts at Meristem Securities Limited have projected a healthy growth for United Bank for Africa (UBA) Plc, anchored on the strength of the group’s digital earnings performance.

The bank stock is rated Buy with price target sets at N9.15, providing an upside potential of 18.06 per cent at a reference market price of N7.75. According to its unaudited financial statement for the first three months, UBA Plc achieved a gross earnings jump of 18.39 per cent year on year to N183.91 billion.

This performance resulted from an increase in both the funded and non-funded income streams, according to Meristem analysts’ outlook on the Pan African financial behemoth.

The investment firm explained that UBA’s funded income grew by 15.10 per cent year on year to N124.86 billion in the period under review, while fee-based income advanced significantly by 25.55 per cent to N58.83 billion.

Analysts spotted that inflationary pressure in operating regions elevated the group’s operating costs by 20.46 per cent to N77.64 billion. Consequently, the cost-to-income ratio inched higher by 127 basis points to 61.67 per cent between the first quarter of 2021 and 2022.

Despite pressures on in the operating environment, UBA Plc. delivered a 9.73 per cent year-on-year increase in the bottom line, with profit after tax printed at N41.87 billion.

Balancing its outlook for the year, Meristem hints that impressive topline and bottom-line expansion are positive for the outlook for the year. Meanwhile, the firm said increased operational costs and cost to Income ratio are downside risks.

As such, analysts at Meristem Securities pointed out that they expect non-funded income to push gross earnings and cost control measures to drive net income in 2022.

“We maintain our forecast for gross earnings and net income at N722.14 billion and N137.74 billion, respectively, in 2022”, analysts noted in the review.

Nigerian based multi-asset investment firm, CardinalStone Partners Limited, has upgraded the price target of the UBA Plc to N10.94 following an upward adjustment to the Pan African lender’s earnings outlook for the year.

The Pan African lender is placed on CardinalStone Securities Limited buying rating. At the reference market price of N7.75 kobo, analysts said in the equity report that Ticker: UBA is trading at a deep discount to its 5-year mean price to book ratio.

In the firm’s projection of the year, analysts see UBA’s Pan African footprint as a supporting factor for the group’s earnings performance in the financial year 2022. According to analysts, a higher yield would stall margin contraction in the current year, noting that despite the slight moderation in asset yields in the first quarter of 2022, they remain constructive on UBA’s net interest margin (NIM).

For the current year, equity analysts indicate the expectation that UBA Group’s net interest margin will improve by 20 basis points from the financial year 2021 level.

“Our positive view on NIMs is built around the monetary policy committee-induced rise in interest rates which is likely to filter through to asset yields. the sustained increase in interest-earning assets (5-year CAGR of 14.2%) bodes well for interest income and the high proportion of CASA in the deposit mix is expected to limit the negative pass-through of higher interest rates.”