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Equities: UBA Outperforms Banking, Stock Market Index In H1 ‘15

The impressive performance of the stock of United Bank for Africa (UBA) in the equity market since the beginning of the year excites its investors who attribute it to the stability in the lender’s management and growing confidence in its stock

Sam Diala

At a time equity performance is sluggish on the Nigerian Stock Exchange (NSE) and many stocks are grappling for breath in the bearish territory in the first six months of this year, investors in equities of the United Bank for Africa (UBA) are smiling. This is because the bank’s share price has remained bullish and has become investors’ tonic on the Nigerian bourse.

Investigation shows that UBA’s share price has gained an average of 21 per cent since the beginning of the year at a time the NSE All Share Index (ASI) dropped by 4 per cent. The ASI measures the average change in the prices of listed companies at a given time.

The UBA share price which closed N4.30 at the close of business in December 2014, is currently trading at N5.20 per share. This has placed UBA on the platform of a bank that has so far made the most gains in the market this year.

Of particular note is that despite listing of Rights Issue shares of Diamond Bank Plc and Pharma Deco Plc, the NSE market capitalization still hovers stagnantly at N114.4 trillion or USD57.6 billion (using N198/ USD rate). This makes UBA impressive performance more significant; though, a few other stocks have been relatively defensive, with impressive year-to-date gains. However, there have been few gainers, especially among the large cap stocks on the Exchange, since the beginning of 2015.

Industry experts attribute outstanding performance of UBA share price to the earnings performance of the bank as well as increased investor confidence in the institution. They note that the Management and Board of the bank have shown renewed commitment to sustainably grow shareholder value over the near to long term. This, analysts say, reflected on the bank’s financial performance in its 2015 first quarter financial results.

“UBA’s first quarter results for the period ended March 2015 shows earnings rose 22% to N83 billion from N68 billion in the comparative period of 2014. The bank’s operating income was also up a significant 17% to N53 billion compared to N45 billion within the same period benefiting from higher yields on earnings assets. With management able to suppress similar growth in operating expense, which grew at a marginal 3.5%, UBA declared a pre-tax profit of N18 billion in the first quarter 2015, a significant 36% increase compared to the same period of 2014,” the bank said.

The bank further disclosed that it also made “strong improvements in its operating efficiency in the first quarter of 2015, which explains the significant growth in earnings and profitability,” adding “The bank’s cost-to-income ratio dropped to 63.9% in the first quarter from 69.1% in the comparable period of 2014.”

Capital market operators say the efficiency with which the bank uses its assets also improved in the same period with return on average assets increasing to 2.4% in March 2015 compared to 1.9% in March 2014. The bank’s net interest margin also moved up from 5.9% to 6.2% reflecting moderating in funding cost and better yield on earning assets.

Analysts argue that investors are increasingly getting sophisticated, and are seeking not only immediate performance and return, but also confidence in the long term sustainability of the business they invest in, particularly long term investors who are seeking sustainable value and return over a longer horizon.

They emphasise that UBA stocks still has a strong upside potential. “With Nigerian banks trading at an average Price-to-Earnings ratio of 5.8x (relative to peer countries banks’ valuation of 10.5x and the MSCI Frontier Market Africa Index valuation of 11.2x); an apparent undervaluation, there is a strong scope for further rally in Nigerian banks’ stocks. More so, for stocks like UBA which have rallied strongly in the year, but very attractive at 3.4x Price-to-Earnings ratio.”

Lagos-based capital market operator, Sola Oni, said the bank had recovered from its worst moment and is now reaping the fruits of its turnaround. He also described UBA stock as one investors are going after.

“UBA has had its worst moment. The bank is now reaping the fruits of its turnaround. The result are good and the management is stable. The share seems to be trading below its intrinsic value. The stock is a good buy,” Oni told The UNION by telephone yesterday.

UBA’s diversified operation across Africa is also an incentive for investors. The bank is one of Africa’s largest financial institutions offering banking services to more than 8 million customers across 700 branches in 19 African countries and 3 global financial centres with presence in New York, London and Paris.

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