United Bank for Africa (UBA) hasn’t been able to rebuild profit after dropping from the peak record in 2012 but this year is quite promising for the bank. Revenue growth has been decelerating in the past two years but a renewed growth can be expected this year based on the second quarter interim report. Also the bank has lost profit margin in each of the past two years but it is likely to achieve one of the strongest improvements in net profit margin in 2015.
UBA’s second quarter report shows a sustained growth in revenue compared with the first quarter and an accelerated growth in profit. The full year earnings outlook for the bank has therefore improved. This is a reversal of the developments witnessed in the preceding two years. Revenue growth slowed down in 2013 and even more rapidly in 2014 and this hindered profit performance in those years. This year, revenue growth has picked up once again and with it profit outlook for the bank has improved significantly. The bank likely to raise profit to a new high at the end of 2015.
The bank closed second quarter operations with gross earnings of N166.94 billion, which is an increase of 20.8% year-on-year. Revenue growth is strengthened by stronger growth in interest income than happened in 2014. Total interest income grew by 17.9% year-on-year in the second quarter, a considerable improvement from 5.9% recorded at the end of 2014.
Based on the second quarter growth rate, gross income is projected at N335.4 billion for UBA at the end of 2015. This will be an increase of 15.6% over the bank’s gross earnings of N290.02 billion in 2014. The bank has grown revenue every year over the past five years but growth has slowed down over the past two years. The current financial year is therefore promising to be one of a renewed growth in revenue for UBA.
Improved revenue performance is further strengthened by moderating expenses to brighten the profit prospects for the bank in the current year. Interest expenses slowed down relative to both interest income and gross earnings and therefore claimed reduced proportions of each. That permitted a stronger growth of about 19% in net interest income than the 2.8% realised in the 2014 full year.
Another favourable cost behaviour is in respect of operating expenses, which also moderated relative to revenue. Total operating expenses grew by 13.9% to N69.65 billion year-on-year at the end of the second quarter and therefore moderated relative to the 20.4% growth in gross earnings. The effect of that is a reduction in operating cost margin from 44.7% at the end of 2014 to 41.7% at the end of the second quarter.
This means the two major expense line has permitted increased flow of revenue into profit so far this year. This resulted in a more rapid growth in profit than revenue at the end of the second quarter. The bank lifted net profit by almost 70% year-on-year to N34.18 billion at the end of June. Such a high rate of growth is quite rare to find in the banking sector so far this year.
Based on the growth rate in the second quarter, after tax profit is projected at N67.5 billion for UBA at the end of 2015. That will be an increase of 43.6% over the closing profit figure for the bank in 2014. That will be a new peak in profit for the bank after staying two years down from the profit peak of N51.37 billion it posted in 2012.
The ability to convert revenue into profit is stronger this year than seen in the past two years. Net profit margin declined from 23.1% in 2012 to 17.3% in 2013 and further down to 16.2% in 2014. At the end of the second quarter, net profit margin rose to 20.5% from 14.6% in the same period last year. This is one of the highest profit margins in the banking sector this year and one of the few improvements in a situation of a general decline in profit margin not only in the banking industry but in all the sectors of the economy.
The bank earned 94 kobo per share at the end of the second quarter, an increase from71 kobo in the corresponding period in 2014. Earnings per share is projected at N1.86 for UBA at full year compared to N1.42 at the end of 2014. Its dividend per share dropped from 50 kobo in 2013 to 10 kobo in 2014. It is making up for the drop with an interim dividend of 20 kobo announced last week. The bank’s register will close between 10-11th September and payment is scheduled for 16th September 2015.