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Published On: Sun, May 20th, 2018

UBA’s Uzoka steps out of the shadows


United Bank for Africa (UBA) has had a chequered history of good times and bad times but with its blazing first quarter (Q1) 2018 results setting the tone for a new twist in the tale analysts have begun to take out calculators as they forecast the bank’s potential year-end earnings. With profit before take sneaking up at a modest4.3 per cent rising from N25.5 billion in Q1 2017 to N 26.6 billion in Q1 2018, the signs are bright that the bank once called the ‘wise man’s’ bank is on its way to meeting a forecast eps of about N2.49 per share, which according to market analysts, implies that on a one year forward adjusted price basis and a price earnings multiple (P/E) of 6, the bank could end the year at a stoutvalue of N14.92 per share, or what amounts to a hidden value opportunity of between 25 and 30 per cent (based on a recent market price of N11.45). With this performance in the wings, UBA’s CEO, Kennedy Uzoka seems to be stepping out from behind the lurking shadows of his two predecessors.

Kennedy Uzoka. CEO/Group Managing Director at United Bank for Africa PLC

According to Peter Aletor, chief executive officerofApel Assets and Trust, ‘’UBA looks like a fat pitch (a stock with strong growth potentials). Its hidden value prospects are strong and its operational stability and internal liquidity build up confidence in stakeholders. Baring any major regulatory ruckus, the bank should be able to close the year on a high’’. Apparently this opinion is shared by other stock dealers too, Moses Ojo, stock analyst at Pan-African Capital Plc notes that ‘’on a weighted net asset valuation basis and taking into account a likely N 91.35 billion 2018 profit after tax (up from N78.6 billion in 2017), the bank could easily trade at N14 or N15 per share going forward. ‘’he notes.

But what is the mystery behind the general optimism that surrounds a bank-acquired by a one-time profit-scavenger in 2005? Apparently, a lot. The new UBA is a child of unusual circumstances. In the 1980’s and mid-1990’s UBA was a signature bank for retail traders targeting small savers and public-sector businesses. The bank, at the time, was considered to be as safe as houses, but this was more aggressive public relations gimmickry than proper business evaluation. Under Harvard-trained lawyer, Hakeem Belo-Osagie, UBA had a sparkling public presence but a decidedly shaded business model that whipped up a dark blend of strong public-sector activity with aggressive (and at times allegedly illicit) foreign exchange trading. The cavalier business model under Belo-Osagie soon brought the bank into direct conflict with regulatory authorities and led to the not-so-quiet sacking of its board.

It was strongly rumoured by the mid-1990’that the maximum Nigerian leader, General Sani Abacha, was unyieldingly bent on taking over the institution through a web of proxies. The death of Abacha in 1998 stopped the move. By 1999 when Chief Olusegun Obasanjo (another former army General) took over power in a civilian election, UBA had stumbled into operational limbo. Obasanjo’s pro-private sector posture would result in a series of fast-paced banking sector realignments especially when erstwhile Central Bank of Nigeria (CBN) Governor, Chukwuma Soludo, a Professor of Economics, decided to break up family-owned banks and increased bank minimum capital requirements to a steep N25 billion or what at the time amounted to $200million. The deliberate consequence of the policy was to shrink the number of banks in the financial service sector from an unwieldy ecosystem of 89 mainly struggling institutions to an era of 25 mega banks. The jury is still out on the wisdom of the move, but what clearly resulted from the policy were the swift acquisitions and the near-acquisition of a few big banks by unlikely smaller rivals and the redefinition of the norms of banking competition.

One of the beneficiaries of the new-look banking sector was the sleek, uppity and viciously competitive Standard Trust Bank (STB), where Elumelu and a few management confederates held court and were insistent on turning the next competitive corner by growing the bank’s balance sheet and expanding its business network as quickly as possible. The gambit paid off when in a move that surprised analysts, STB entered a sweetheart-deal with erstwhile UBA to form the new-look back that was decidedly bigger but shamelessly faster and more innovative. The new institution took the street smarts of the old STB and the genteel retail dominance of the former UBA to quickly jump through several market hoops. It was a match made in purgatory if not heaven.

Since 2005 when the new bank came into being UBA has been floating on air; a combination of clever marketing, strong and bold thinking (typified by the way the former STB took over the accounts of members of the national assembly and the legislative institution itself)and a coherent succession plan that has avoided internal rancour and allowed some of the industry’s finest hands rise to positions of greatest competence. The Elumelu years set the tone for what has proved to be UBA’s sunshine years as expansion has come fast and thick especially across the African continent. Tony Elumelu took the banks pre-tax profit from a profit of N6.5 billion in 2005 to an economy-induced loss of N 8.2 billion in 2010when he retired as the bank’s chief executive.Oluwarinu Olawale of Capital Express Securities notes that ‘’the bank under Elumelu took the concept of ‘hop, step and jump’ to the point of a creed. There was no room for laggards and no redemption for small minds. You simply delivered or got the boot.’’.

If the Elumelu years were tough, the Oduoza years were no candy treat. By 2011 the bank had transitioned to a new epoch where Phillips Oduoza, the then-new boss on the bloc, took a fresh path by diluting the bank’s domestic loan portfolio and reducing its local risk exposure. This meant that the bank had to step outside the shores of Nigeria to develop an emergent continental brand. Earlier numbers from the experiment quickly encouraged the Oduoza management to drive a stronger onslaught on the African financial market space with about a third of its profit before tax coming from non-Nigerian branches.

In a recent interview with Business Hallmark, Oduoza who has since become Chairman of newly established Nova merchant bank pointed out that, ‘we had a clear understanding of the creeping changes in the domestic money market and the need to see a more dynamic balance sheet emerge to protect the business’s overall stability. The global recession of 2007/2008 taught a number of lessons and we were quick studies in risk management. We realized pretty early that we needed to sterilize our exposure to specific sectors of the economy and specific economies of the continent. As UBA’s books have shown and still show being a good student is its own reward’’.

Oduoza took over the reins at UBA when things were getting a bit rocky. The continental gamble the bank embarked upon had yet to prove its worth and the operating numbers were becoming a little scary. In 2011 pre-tax profit dipped from N3.22billion in 2010 to a loss of N28.5billion in 2011. Investors were concerned that the new chief was finding it difficult to navigate his way despite being one of the bluest of the blue-eyed boys under the previous CEO, Elumelu.‘’At the turn of the new decade and with a new bank boss, UBA entered into a transition shock as Uduoza came into the top executive chair when the bank was at the deep end of a new and unchartered strategy shift. It would take confidence, boldness and clear-headed pursuit of strategic goals to pull the nuts out of a fiery fire. Uduoza had a baptism not many people would want to experience, no matter the managerial and spiritual benefits’’, notes Rotimi Ogunwale erstwhile chief operating officer of Imperial Finance and Securities, ’twenty eleven was a year in which Oduoza had to prove his mettle, he was either going to get out of the challenge stronger or sink with his head in his hands. Fortunately, he survived the panic. The banks non-performing loans ratio dropped from a troubling 6.7 percent (1.7 percent higher than the official threshold) in 2010 to sizeably modest 3 percent in 2011 and then to a much more comfortable 1.9 percent in 2012, by which time Oduoza had placed a firm hand on the plough and was tilling the banking field brilliantly’’, says Ogunwale.

By the time Oduoza left in 2016, UBA was well out of its bad loan problems and was playing outstandingly brilliant corporate games on the global banking turf, where brand recognition and profitability were rising significantly. When Oduoza called time on his UBA career, the bank had already made solid gains both domestically and on the continent. This set the stage for the bank’s new kids on the bloc, the next generation of leaders headed by Kennedy Uzoka, a Corporate Banking whiz and a veteran of a large number of C-suite banking positions.

So far, Uzoka’s figures look inspired. The banks 2017 results showed that gross earnings dusted that of 2016 by a buff 20.4 percent from N383billion in 2016 to N461 billion in 2017, profit before tax hopped forward16.13 per cent from N90.6 billion in 2016 to N105.3 billion in 2016 while impairments rose in absolute terms from N27.7 billion in 2016 to N32.9 billion in 2017. The rise in impairments appears to follow the banks’ deliberate efforts of clearing out its books of toxic assets as quickly as possible by taking early charges to the lenders’ profit and loss account. This should stand the bank in good stead in its 2018 accounts and in other annual accounts going forward as similar hefty charge-offs are not likely to recur. According to Capital Expresses Olawale, ‘’the faster corporations get poor quality assets off their financial books the better, eating the big frog first is a sensible strategy for handling difficult times. On this point, I think management strategist Brian Tracy got it spot on’’, she observes.

Nevertheless, the banks’ impairment charges did rise as a proportion of loans to customers from 18 percent in 2016 to 20 percent in 2017, indicating that the management still needs to bring to heels its large loan portfolio and reduce the size of its credit delinquency. First quarter (Q1) 2018 ratios look optimistic.

Net interest income as a proportion of loans and advances to customers rose from 4.2 percent in 2016 to 4.3 percent in 2017. Suggesting that margins from the banks’ core businesses have grown steadily over the last four quarters on a year-on-year basis. This is good but needs to get better. Net profit margin on gross earnings was equally strong but slipped marginally from 22.1 percent in 2017 to 19.9 percent in 2018, reflecting the still persistent pressure a slow economy is having on banks. Nevertheless, the near 20 percent net profit margin was very decent and well within the top-ranking business profit spreads for the quarter for all listed companies.

Kennedy Uzoka may be self-effacing, but he certainly is not shy of building a robust bottom line. The banks first quarter 2018 figures are admittedly modest, but they reflect the basis of stronger earnings on a prospective basis as cost-to-income ratios scale down, net earning margins rise and loan impairment door stops are removed to give UBA a better-looking fiscal story. In months ahead, analysts expect to see a stronger bank in full flight.

“The bank is growing from strength to strength. Tony Elumelu laid a solid foundation. And just before he left the bank and after that, the bank has engaged in expansionary activities to other parts of Africa. This has bolstered their bottom-line. Those investments have started yielding dividends. That is why the result is getting better and they are able to pay superior dividend (recent dividend yield is about 7.42 percent).’’ Says David Adorin of HighCap Securities Limited.

Meanwhile, PanAfrican Capitals Plc’s Ojo, believes that “Tony Elumelu took UBA to the level of a tier 1 bank. But toxic assets crisis in the industry weighed down its performance. Going forward, under Uzoka, I see the bank recovering from that in the medium term. Within two to three years, they will be playing at the level of the big boys in the market, though they may not match the likes of the Zenith’s and GTB’s of the world.” It is this kind of underestimation that Uzoka loves the most, he easily thrives best when he has to work to burst the bubble of doubting Thomas’s.


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