Analyst recommends UBA, GTCO stocks, as banks post strong half year performance

Okey Onyenweaku

The duo of the United Bank for Africa Plc, UBA and Guaranty Trust Holding Company Plc, GTCO are looking like sure bets that investors in the Nigerian Exchange, NGX can cast their nets upon if the view of analysts is anything to go by, BH reports.

This is coming on the heels of the strong half year performance results that the banks have recently turned in to the bourse. And it is further reinforced by the fact that at the price of N7.55 and N19.70 per share, the stocks of the United Bank for Africa and GTCO have become quite attractive at the moment.

Analysts have therefore, advised investors to take positions in these bank stocks to reap good returns in the short to long term.

One such analyst is Coronation Research. After reviewing the stock’s performance, the analysts say that ‘looking ahead, the benefits of rising asset yields are likely to filter through to funded income and further support earnings in Q3. In addition, the stock has declined by 6.2% y-t-d, is trading at a deep discount to its peers and historical valuation, and has a 2022 dividend yield of 15.9%. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock.’

Indeed, it is a similar position that the analysts also take for GTCO as they maintain:

‘’Net interest income was in line with our expectations. However, profits were lower than our and the market’s expectations following higher-than-expected tax charges and operating expenses. We are worried about the slow growth in the group’s loan book, while concerns remain around the elevated operating expense profile. However, we are encouraged by the fact that the group maintained its dividend payout despite the drop in earnings.

‘’On the positive, as we expected, interest rates have risen significantly in recent weeks. As a result, the benefits of rising asset yields are likely to filter through to funded income and support earnings in Q3. In addition, the stock has declined by 23.5% y-t-d and is trading at a deep discount to its peers and historical valuation. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock.’’

The analysts went ahead to recommend the stocks to investors to buy them for future gains.

Performance of the banks

United Bank for Africa (UBA) Plc, had announced its audited financial results for the half year ended June 30, 2022, recording double-digit growth across key income lines, with significant improvement in the contribution from its subsidiaries.

The report shows that at the end of the first two quarters of the year, the Bank raised its profit after tax (PAT) by 16% to record N70.33 billion from the N60.58 billion in the first half of last year, even as operating income also grew by 20.1% to N256bn in the period,

This is in defiance of numerous business, economic as well as geo-political environmental challenges including continued supply-chain interruptions due to Covid, the Russia and Ukraine conflict, and the resultant rise in prices of global commodities within the period.

The tier 1 lender delivered impressive numbers, with gross earnings hitting N372.4bn, a solid 17.8 percent growth when compared with N316billion that was posted the same period in the prior year.

The Bank was also able to deliver a 12.6 per cent appreciation in profit before tax (PBT) to N85.7bn, up from N76.2bn recorded in the same period of 2021.

A further breakdown of the Bank’s half-year result, which was filed with the Nigerian Exchange Group(NGX), in the early hours of Thursday, September 8, showed total assets continued on an upward trajectory, increasing 5.4 percent to about N9 trillion.

UBA delivered on its core mandate of extending loans to credit-worthy customers, with loans and advances increasing by 4 percent to N3trillion; whilst deposits rose by 7.9 percent to N7.6 trillion at the end of the period.

Shareholders’ funds however declined marginally by 2 percent to N788.5 billion, owing mainly to the decline in its foreign operations translation reserve as well as fair value losses suffered from the investment securities valuation occasioned by the increasing interest rate regime across the globe.

With the strong double-digit growth in PAT vis-à-vis the marginal decline in shareholder’s fund, the Group’s return on equity (RoE) closed the period stronger at 17.7%, whilst return on assets (RoA) came to 1.6%, up by 9 basis points.

Reaffirming its commitment to shareholders and the investing public, the Board of Directors of UBA Plc declared an interim dividend of 20kobo per share for every ordinary share of N0.50 each held by its shareholders.

UBA’s Group Managing Director/Chief Executive Officer, Oliver Alawuba, commenting on the result, said the stellar performance was in line with management’s expectation, adding that the Bank’s continued focus on its Customer 1st philosophy to pursue the mission of providing superior value to our stakeholders had increased low-cost customer deposits, and boosted the growth of its payment and transaction banking.

“The financial year 2022 showed initial signs of recovery of economies across the globe, despite continued COVID-induced supply-chain disruptions. However, geopolitical challenges including the Russia and Ukraine conflict, resulted in escalation of global commodity prices, particularly that of grains and crude oil, which have taken a toll on several economies. Notwithstanding these developments, our half-year numbers came out stronger than the previous year, with top and bottom-line reaching new record highs,” Alawuba said.

According to him, the Group’s profitability increased by 12.6% to N85.7 billion, with double-digit growth recorded across key income line. The Bank also recorded a decent 20% growth in net interest income as it continues to moderate cost of funds whilst improving yield on assets, thereby contributing to the strong 20% growth in operating income.

“Our investments in state-of-the-art technology has continued to yield expected results and this is evident in the huge boost of our digital banking income, which grew 22.7% year-on-year to N36.3 billion. These gains have enabled us optimise net earnings amid the accelerating inflationary pressure, currency devaluation, and increased regulatory-driven costs,” he said.

Alawuba also noted that he is delighted at the strides made by the Bank in growing its market share across Africa. In his words, “Our retail business has continued to grow as we ride on our agency banking network, trusted brand, competitive product offerings and quality service delivery, to deepen our retail penetration.”

He also commented on his recent appointment as Group Managing Director/Chief Executive Officer, alongside five other Group Executive Directors and assured the investing public of his relentless commitment to the growth of the business. “Together, with our highly motivated workforce, we are poised to usher the business into a new era of growth that will deliver superior value to all stakeholders,” he said.

UBA is a leading pan-African financial institution, offering banking services to more than thirty-seven million customers across 1,000 business offices and customer touch points in 20 African countries.

With presence in New York, London and Paris and now the UAE, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross-border payments and remittances, trade finance and ancillary banking services.

GTCO grows HI pre-tax profit to N103.2bn

On its part, Guaranty Trust Holding Company Plc (GTCO) equally defied the tumultous headwinds to post a profit before tax of N103.2 billion in its half-year (H1) 2022 operations, which is a modest improvement on N93.1 billion achieved in the corresponding period in 2021.

According to the Bank’s unaudited half-year financials submitted to the Nigeria Exchange Limited (NGX), its performance for the period ended June 30, 2022 showed a PBT of N103.2 billion, representing an 11 per cent increase over N93.1 billion recorded in 2021.

The Group’s loan book (net) increased by 1.8 per cent from N1.8 trillion recorded as at December 2021 to N1.83 trillion in June 2022, while deposit liabilities also rose from N4.13 trillion in December 2021 to N4.39 trillion, representing a growth of 6.4 per cent.

GTCO’s balance sheet remained strong with total assets and shareholders’ funds closing at N5.7 trillion and N845.7 billion respectively.

Group Chief Executive Officer of the bank, Segun Agbaje, said the results showed an increase in key revenue lines and strong performance in other financial metrics, which reinforce the bank’s growth prospects as a leading financial services company.

“Our priority at the start of the 2022 financial year was to bring the group’s new businesses on stream, starting strong with a focus on long-term viability. At present, we have successfully expanded our financial services ecosystem to include HabariPay Ltd, Guaranty Trust Fund Managers Ltd, and Guaranty Trust Pension Managers Ltd and all of them are profit and loss (P&L) positive.”

He said these newly created businesses will operate alongside the flagship banking franchise to offer increased value to its growing customer base as well as other stakeholders.

According to him, the bank will continue to build on its core strengths of service excellence, innovation, and flawless execution to deliver its corporate objectives for the year, as well as the vision of being Africa’s leading financial services institution.”

He added: “Overall, the group continues to post one of the best metrics in the Nigerian financial services industry in terms of key financial ratios in Pre-Tax Return on Equity (ROAE) of 23.9 per cent, Pre-Tax Return on Assets (ROAA) of 3.7 per cent, Full Impact Capital Adequacy Ratio (CAR) of 22.0 per cent and Cost to Income ratio of 49.1 per cent.”

GTCO Plc is a fully-fledged financial services group with banking operations across West and East Africa and the United Kingdom as well as non-banking businesses in several key industry segments including payment, funds management and pension fund management.

With N5.7 trillion in assets and over 28 million customers, the group remains one of the most profitable and best-managed financial services companies in Nigeria providing commercial banking services and non-banking financial services across eleven countries.

Overall, it is notable that the banks achieved such commendable performances despite the fact that their home Nigerian economy is in dire straits. About 40%(80-100m) of Nigerians are wallowing in extreme poverty ;food production is expected to decline given to fertilizer shortages due to the Russia/Ukranian war; Nigeria has also not fully recovered from the devastating impact of Covid-19; the growing insecurity which has hampered agricultural activities is taking a different toll on Nigeria’s food security; food inflation according to NBS stood at over 19%; over N6trillion deficit is tugging at the N17trillion budget for 2022 and the bulk of debt servicing will also come from that money; the value of the naira keeps declining and the Country remains unproductive; unemployment and underemployment rates stood at 35% and 22% respectively.