By MIKE UZOR

The current financial year looks quite promising for United Bank for Africa [UBA] but can the bank maintain the high growth momentum to full year? The bank’s profit records show a pattern of rise and fall and a big rise may be possible for the bank this year if the second quarter growth rate is sustained in the second half of the year.

The bank is experiencing a renewed growth in revenue and profit margin has also improved, which has brightened the full year profit prospects. This is unlike in the preceding two years when revenue growth slowed down and hindered profit performance. The bank may attain a new high in profit at the end of 2015, after two year of weakness.

Gross earnings amounted to N166.94 billion for UBA at the end of the second quarter, which is an increase of 20.8% year-on-year. Growth in interest income has accelerated from 5.9% at the end of 2014 to 17.9% at the end of the second quarter. Based on the second quarter growth rate, gross income is likely to grow by about 16% over the bank’s full year figure of N290.02 billion in 2014. This will be a renewed growth in revenue for UBA after two years of slowdown.

The bank’s profit outlook has been brightened by both the improved revenue performance as well as moderating expenses. Interest expenses slowed down relative to earnings and therefore claimed reduced proportions of revenue. This led to a strong growth of about 19% in net interest income in the second quarter.

Operating expenses have 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 compared to the 20.4% growth in gross earnings. Consequently, operating cost margin has declined from 44.7% at the end of 2014 to 41.7% at the end of the second quarter.

The favourable cost behaviour enabled the bank to grow profit ahead of revenue at the end of the second quarter. After tax profit rose by almost 70% year-on-year to N34.18 billion at the end of June. Will the bank be able to keep profit growing at that rate to full year is the question given the earnings records of rise and fall.

If the second quarter growth rate is maintained, the bank may grow after tax profit by as much as 40% at the end of 2015. That will take the bank to a new peak in profit after two years of inability to return to its profit peak of N51.37 billion in 2012.

UBA lost profit margin in the preceding two years but this year a strong improvement has been recorded so far. At the end of the second quarter, net profit margin rose to 20.5% from 14.6% in the same period last year. Net profit margin declined from 23.1% in 2012 to 17.3% in 2013 and further down to 16.2% in 2014.

The bank is showing one of the highest profit margins in the banking sector this year. This is against a general decline in profit margin in the banking industry. Profit margins are affected by rising interest expenses and impairment charges for credit losses, which are industry wide developments.

The bank earned 94 kobo per share at the end of the second quarter, an increase from71 kobo in the corresponding period in 2014. It earned N1.42 per share at the end of 2014, which is may improve to over N1.80 in 2015. Its dividend per share dropped from 50 kobo in 2013 to 10 kobo in 2014. It paid an interim dividend of 20 kobo for the current year last September.

UACN: profit likely to fall from peak

UACN’s operations in the second quarter ended in a loss and the company’s profit looks likely to fall from the peak record attained in 2014. The conglomerate has grown profit every year in the past five years but that record may be interrupted this year. Profit was already dropping as from first quarter and the second quarter loss has accelerated its pace towards the lowest profit figure in many years.

The company is facing operating pressure from both sides of sales revenue and profit. Sales revenue is declining while operating expenses are rising, resulting in a loss of considerable profit capacity in the current year.

The company’s sales revenue declined by 7% to N37.37 billion year-on-year at the end of the second quarter. The full year outlook indicates that sales revenue could drop by a wider margin to the lowest figure in three years. The company grew sales revenue by 8.8% to N85.65 billion in 2014 and has maintained consistent growth in turnover since 2011.

The drop in sales revenue in the second quarter was reinforced by a drop of 37% in other income. Share of profit from associates also dropped by18% to N1.2 billion at the end of the second quarter.

The pressure from the cost angle was led by distribution/administrative cost, which rose by 35% against the 7% decline in sales revenue during the review period. The company devoted 19.4% of sales revenue to distribution/administrative cost in the second quarter compared to 13.4% in the same period last year.

A favourable cost behaviour came from interest expenses, which dropped by 31% to N708 million year-on-year in the second quarter. This is in spite of an increase of 17% in long-term borrowings to N9.28 billion. Short-term financial liabilities also grew by 5% to over N24 billion from the closing figures in 2014.

The company recorded a drop of 70% in after tax profit to N1.04 billion year-on-year at the end of the second quarter, which is below the N1.68 billion it reported in the first quarter. There was a loss of N638 million in the second quarter, as cost of sales and distribution/administrative expenses grew well ahead of sales revenue.

Based on the second quarter growth rate, after tax profit could drop by as much as 78% at full year from the peak profit record of N10.73 billion in 2014. The company may therefore close the year with the lowest profit figure in five years. UACN grew after tax profit by 8.6% in 2014 and has grown profit every year since 2011.

Profit weakness is explained by a decline in revenue against increased costs, which has eroded the company’s profit margin. Net profit margin has fallen sharply from 12.5% at the end of last year to 2.8% at the end of the second quarter.

The company earned 40 kobo per share at the end of the second quarter, a drop from N1.03 in the corresponding quarter last year. Earnings per share is expected to come to 91 kobo for UACN at the end of 2015 based on the full year projection of net profit attributable to owners of the company. That would be a drop from earnings per share of N3.40 in 2014. The company paid a cash dividend of N1.75 per share to shareholders for its 2014 operations.