17% increase to our ’21-22f EPS forecasts
UBA’s Q4 ’20 results surprised positively across most key headline items. Relative to our forecast, PBT beat by c.55% due to positive surprises on both revenue lines. As such, we have increased our ’21-22f EPS forecasts by c.17% on average. Notwithstanding, our new price target of NGN14.7 is only c.10% higher because we have increased the risk-free rate driving our DDM valuation by 100bps to 11%.
The upgrades to our earnings forecasts are underpinned by upward revisions of c.16% and 3% on average to our non-interest income and funding income forecasts respectively. Despite the decent results, a key theme on the bank’s Q4 ’20 conference call was its final dividend per share proposal of NGN0.35 (vs NGN0.8 2019) which underwhelmed relative to ours and the market’s expectations. The final dividend proposed combined with an interim dividend of NGN0.17 paid in 2020 implies a total dividend of just NGN0.52 per share (vs. NGN1.00 2019) and a pay-out ratio of 12% compared with c.28% in 2019.
According to management, its conservative stance on dividend pay-out is aimed at enhancing capital buffers (CAR 22.4%). Although not confirmed by management, it is also possible that regulatory restrictions on dividend pay-out in some key markets where UBA operates played a part in management’s decision on the dividend. Looking ahead, management has guided to a ’21f ROAE of 18%.
This is much higher than the 13.5% ROAE implied by our PAT forecast of NGN99.2bn. On a relative basis, UBA shares are trading on a ’21f P/B multiple of 0.32x for 13.6% ROAE in ’22f, or a 40% discount to the 0.54x average multiple for 14.9% ROAE that the sector is trading on. Our new price target of NGN14.7 implies a potential upside of 104% from current levels. As such, we keep out Outperform rating.
PBT up triple-digits y/y, thanks to pre-provision profit growth of 42% y/y
Q4 ’20 PBT of NGN 41.5bn grew 218% y/y, driven by a 42% y/y growth in pre-provision profit. The double-digit growth in pre-provision profit was mainly underpinned by solid non-interest income growth of 133% y/y, thanks to fx revaluation gains of NGN6.2bn in 2020 compared with a loss of -NGN10.2bn in 2019 and an 85% y/y growth in trading gains on fixed income securities.
Further down the P&L, PAT after other comprehensive income (OCI) and minority interest was up 45% y/y. Sequentially, advances of 33% q/q and 10% q/q in non-interest income and funding income respectively underpinned PBT growth of 25% q/q. Thanks to a positive result of NGN30bn in OCI vs -NGN6.3bn in Q3 ’20, PAT expanded by 162% y/y.