Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

EQUITY RESEARCH
NIGERIA
DECEMBER 2011
BANKING
United Bank for Africa Plc (UBA), is the product of the
merger of what were at the time Nigeria’s third and
fifth largest banks, the old UBA and the Standard Trust
Bank Plc, respectively, and a subsequent acquisition of
Continental Trust Bank Limited. Following Nigeria’s
independence from Britain, UBA was originally
incorporated in 1961. Today, UBA is one of Africa’s
largest home grown financial institutions, offering
universal banking to more than 7.2 million customers
across 700 branches in 18 African countries, as well as
having a presence in the USA, the UK and France. UBA
has the largest branch network in Nigeria (600) and a
total branch network of 726.
• UBA’s recovery lagged many of its contemporaries in
the sector in FY 10 following the challenges of FY 09,
as falling net interest income and losses on AMCON
sales led to attributable earnings decreasing to NGN
668.0m from an annualised NGN 1.7bn in FY 09.
• In 9M 11, the group continued to underperform, with
profit before tax and exceptional items down 28.01%
to NGN 12.1bn, while attributable earnings growth of
91.29% was boosted by a much lower estimated
effective tax rate.
• The pan-African expansion has weighed down on
performance over the years (ex-Nigeria African
operations had a CIR of 88% as at the 9M period
compared with 79% for the group), expectedly, but
the tide seemed to have turned, with 9M 11 revealing
a positive PBT number for the first time, of NGN 706m
compared with a loss of NGN 2.9bn at FY 10.
• UBA intends to raise NGN 500bn in additional capital
as part of a strategic funding initiative, via a
combination of debt and equity. This is likely to dilute
earnings in the short to medium term.
• Using a DCF valuation, we arrive at a target price for
UBA of NGN 7.04, meaning the share is trading at a
notable discount at its current price of NGN 2.50. We
believe this reflects the market’s disappointment
with recent results, as well as uncertainty around the
structure (and indeed the need and timing) of the
impending capital raise. HOLD
1.4
1.2
1
0.8
0.6
0.4
0.2
0
17-Nov-10
17-Dec-10
17-Jan-11
17-Feb-11
17-Mar-11
UBA vs NSE ASI
17-Apr-11
17-May-11
17-Jun-11
17-Jul-11
17-Aug-11
17-Sep-11
17-Oct-11
17-Nov-11
Recommendation
HOLD
Bloomberg Code
UBA:NL
Current Price (NGN) 2.5
Current Price (USc) 1.5
Target Price (NGN) 7.0
Target Price (USc) 4.3
Upside (%) 181.5
Liquidity
Market Cap (NGN m) 80 837
Shares (m) 32 335
Free Float (est. %) 79.5
Ave. daily vol ('000) - 1 yr. 20 451
Price Performance
Price, 12 months ago (NGN) 7.2
Change (%) (65.5)
Price, 6 months ago (NGN) 6.3
Change (%) (60.2)
Financials (NGN m) 31 Dec F2010 2011F 2012F
Loans & Advances 628 811 724 149 862 406
Net Interest Income (excl. Provisions) 70 776 71 333 92 591
Non-Interest Income 67 441 69 135 84 589
Attributable Earnings 668 13 575 24 668
EPS (kobo) 2.6 46.6 76.3
DPS (kobo) 5.0 8.4 19.1
NAV/Share (kobo) 693.6 669.5 698.4
Valuation Ratios Current 2011F 2012F
Earnings Yield* (%) 7.4 18.7 30.5
Dividend Yield (%) 2.0 3.4 7.6
PE* (x) 13.5 6.0 3.3
PBV (x) 0.42 0.41 0.36
RoaA (%) 0.0 0.7 1.1
RoaE (%) 0.4 7.3 11.7
Net Interest Margin (%) 6.0 5.7 6.1
Cost to Income Ratio (%) 75.2 80.4 72.8
* - trailing
Strengths
Weaknesses
Top tier bank
Inefficient asset mix despite largest branch
Nigeria's largest bank by distribution
network
channels
RoAE currently lagging peers
Brand
Relatively small branch network vs top tier
Opportunities
Threats
Consolidate SSA operations
Longer gestation period for SSA expansion will
Room for growth in LDR to improve margins keep CIR high and restrict earnings growth
Growth in SSA inter-regional trade
Increased regulatory risk due to cross border expansion
UBA
NSE ASI
29