Uzoka (L), Elumelu (R)

Okey Onyenweaku

Almost every management in business entities becomes jittery during times of economic contraction as the one we are in now. This is because business dynamics change and throw up stifling challenges to existing organisations at such moments.
The top management of banks in the country today, as a necessity, are in fact on and off in meetings trying to figure out the direction of things following the disruptions caused by the Covid-19 pandemic among other derailing conditions of the economy.
This notwithstanding, investors are forever looking for the best investments from where the best yield and highest possible returns could be earned. Of course, there is a consensus that the banking industry is the most liquid and in that sector too, there appear to be the stocks that are most exciting to investors. Of the lot, UBA, the Pan-African bank has always striven to be among the best picks for investors who want to reap bountiful returns.
And even the ongoing hard times do not seem to deter the likes of UBA to push for better value for its investors.
The bank’s stock, according to Bloomberg analysis has gained 41.69 per cent year on year to close at N8.80 per share as at February 4, 2021. This is a good price given that the accompanying P/E Ratio of 3.74, and with outstanding shares of 34.2billion.
Experts say that the price-earnings ratio (P/E ratio) relates a company’s share price to its earnings per share. They further explained that high P/E ratio could mean that a company’s stock is over-valued, or else that investors are expecting high growth rates in the future.
A discussion around P/E Ratio shows that a good or bad price to earnings ratio will necessarily depend on the industry in which the company is operating. ‘’Some industries will have higher average price to earnings ratios, while others will have lower ratios. For example, as of January 2020, publicly-traded US coal companies had an average P/E ratio of only about 7, compared to more than 60 for software companies. If you want to get a general idea of whether a particular P/E ratio is high or low, you can compare it to the average P/E of the competitors within its industry’’, one commentator remarked.
Analysts believe that If a company has a lower P/E, you get more earnings for your investment. This makes a low-P/E stock a good value, but it can also simply indicate that investors aren’t very confident about the company’s prospects. UBA belongs to this category of stocks with its P/E Ratio 3.74.
Research reveals that a stock is considered overvalued when its current price isn’t supported by its P/E ratio or earnings projection. If a company’s stock price is 50 times earnings, for example, it’s likely overvalued compared to a company that’s trading for 10 times earnings. UBA ‘s Earnings per share currently stands at 2.36 kobo, indicating that it is undervalued.
This an indication that its stock has a potential to appreciate in due course, and maybe when the prevailing head and tail winds are over.
Recall that UBA’s stock had been the highest priced banking stock at N37.99 per share as at February 13, 2007 and investors reaped hugely back then. This was however, during the boom time.
Managing Director of HighCap Securities ltd, Mr. David Adonri, told Business Hallmark that UBA’s stock price was very attractive.
‘’UBA’s P/E Ratio is not bad at all. What P/E Ratio means is if you buy that stock now at the current price, it could take you about 4 years or 3 years and 3months to recoup your investment on that stock. I think UBA stock is at good one at that P/E Ratio. An average P/E ratio that will make a stock attractive is usually about 5, that means that if you buy now you will recoup your money in five years. But generally the stock market is a long term market so in other countries, and particularly in mature markets they are actually looking at returns over a long time. In mature markets it actually takes about 10 to 20 years to recoup your investment. Ours here is below 10 years. 10 years is good. So UBA’s stock is attractive.’’
Though, the times have changed, analysts believe it has become hard for firms to fly in such weak economies as Nigeria: where the economy which has already slid in to recession in the third quarter 2020; where inflation is hitting the roof top at about 15 per cent; where the Naira has lost value and vigour; where the budget deficit stood at -4.69% of GDP; where insecurity has halted business activities in some parts of Northern Nigeria; where unemployment remains very high; where government is unstable; and where economic policies are done to favour a section of the country.
Recently, the government also hiked the prices of fuel and electricity for the masses of the country which has 82 per cent of its population in the poverty bracket.
‘’Who would expect companies to perform magic in a country where its citizens appear to have lost hope’’, a senior civil servant who would not want to be mentioned in print.
” A very challenging time to run a financial institution, however, it also offers a chance for those, who drive to showcase their big capacities”, an analysts who would not want his name mentioned in print said.
But the likes of UBA which have been resilient, innovative and target oriented have pushed against the head winds to remain strong. This has been reflected in its performance over the years.
Its audited result for the period ended December 31, 2019 revealed that there was a 13.3% increase in the company’s profit after tax.
UBA reported total interest income of N404.8 billion in full-year 2019, marking an 11.5% increase when compared to N362.9 billion that was reported for the preceding year.
While its net interest income stood at N221.9 billion, increasing by 8%, up from N205.6 billion, the tier-1 bank recorded a profit before income tax of N111.3 billion and this is 4.2% more than the N106.8 billion that was recorded in FY 2018.
The Pan-African Bank raked in profit after of N89.08 billion, indicating that a 13.3% increase when compared to the N78.6 billion that was recorded in 2018.
Earnings per share which is attributed to owners of the company during the period under review is N2.52.
Also in the third quarter 2020, the bank similarly proved to be formidable.
It succeeded in upping gross revenue by 5.94% to ₦453.67 billion, on the back of interest income that rose 6.46% to ₦317.14 billion, but was weakened by fees and commissions income and other operating revenue which waned 1.76% and 28.14% respectively during this period.
Net trading and foreign exchange income which jumped 28% to ₦45.72 billion in Q3 2020 was not enough, as the 72.23% in UBA’s impairment provision for bad risk assets it weighed down on its performance.
Though interest expenses dropped by 5.66% to ₦131.12 billion, fees and commissions costs and personnel costs soared 23.8% and 20.67% respectively during the period under review.
The Group grew loans and advances by 12.94% to ₦2.45 trillion in Q3 2020, lifting its total assets by 29.98% to ₦7.06 trillion 9 months from ₦5.6 trillion as at December 2019.
It also made significant progress in mopping up cheap funds as deposits swelled 36.64% to ₦5.6 trillion compared with ₦4.1 trillion in December last year.
However, UBA felt the impact of the tough operating environment as its post-tax profit growth was stunted, declining 5.51% to ₦77.13 billion in Q3 2020.
‘’In spite of the current turbulence in the operating environment, occasioned by the global pandemic (COVID-19), the Group delivered gross earnings of N454.4 billion, which is a 6% growth from the N428.7 billion recorded in 9M 2019. This was driven largely by a 6% growth in our interest income (to N317.1 billion) despite the depressed yield environment across our major markets.
‘’We achieved a profit before tax of N90.4 billion and N77.1 billion, after tax, delivering an annualized ROE of 16.4%. We have continued to record significant progress in our financial inclusion propositions which have helped us moderate cost-of-funds to 3.2% (4.0% in FY 2019), as low-cost deposits (which accounts for 76.2% of our customer deposits) grew 40.8% by the end of the third quarter. Our Direct Sales Agents, Agency Banking Network, and Digital Banking propositions have positioned us at the forefront of financial inclusion across geographies where we operate’’, said GMD, Kennedy Uzoka.
Overall, this is not a mean performance by any standards, especially at a time when the head and tail winds are strongest and devastating for businesses not only in Nigeria but also all over the world.
The twin barreled pandemic; that is that of Coronavirus and the price of crude ( Price of crude hovers between $50 and $55 now)which have disrupted businesses, supply chains and even caused many deaths all over the world seem to have placed a strong knee on the neck of many firms and ‘they can’t breathe.’
The lender (Company) has remained formidable in the midst of all odds.
In fact, in the previous years’ its strong performances have also provided a sturdy base for the vigour and strength which the lender has displayed.
Analysts are bullish on the bank which has shown vigour and promise.
One other significant thing about UBA is that it has long left its contemporaries behind and stands out as a leader.
And here is how Adonri situates it:
‘UBA has promised to pay dividends in 2020. I will take it from the historical perspective. UBA was one of the three old dominant banks and among them, I mean Union Bank and First Bank have been seriously troubled to the point that they have fallen down the pecking order. Union Bank and First Bank are now rubbing shoulders with the tier 2 and 3 banks .
‘’But UBA has remained entrenched as a tier 1 bank. That shows that the bank is resonant and has continued to grow from strength to strength. For several years it has been bedeviled by the kind of challenges that have burdened the other banks.
‘’Though it has its own internal problems. But it has been able to weather the storm. It has been able to do that because of the kind of re-invigorated leadership that one person has brought to the table and that is Tony Elumelu. Tony has kept that pedigree and has been able consolidate the bank, making a very vibrant and competitive brand.
‘’Then their cross border expansion has added huge value to the bank. The bank is now entrenched in the international arena, I think for that bank the sky is its limit, especially now that there is AFCTA. The African continental trade pact which will bring most African countries to trade among themselves is a definite boon. Most of those transactions will run through banks and UBA is one of the banks that is positioned to benefit from that trade’’, Adonri concluded.