UNITED CAPITAL: STRONG NUMBERS, DESPITE ECONOMIC GLOOM

Leading investment service provider on the Nigerian Stock Exchange (NSE), on Friday, released its nine month earnings report for the period ended September 30, 2016, with top and bottom lines pointing northward, defying headwinds in the nation's economy.

This performance is a continuation of solid quarterly numbers revealed by the company since the beginning of the current financial year, attributed to the commitment of the company's management to deliver value for clients and shareholders by remaining active in its core operational areas of investment banking, trustee, asset management and securities trading. \

These were backed by aggressive product innovation and marketing, driven by robust technology. In this way, United Capital has been able to deliver satisfactory services in an efficient manner, while ensuring cost management that has helped boost profitability. 

A combination of excellent services offered to stakeholders and strong investment drive, as well as its understanding and exposure to the nation's financial market have supported the performance ratios of this result, as well as those of previous quarters and years.

The company's outstanding performance since becoming listed in 2013 has supported consistent dividend payment to the delight of shareholders that has in turn supported its price on the exchange.

The scorecard revealed a 39%rise in gross earnings toN5.69 billion from N4.09 billion in 2015,driven by investment fees and transactions from the core service area of the company.

Within the period also, profit grew by 106% to N3.96 billion from N1.91 billion in 2015 without factoring in the income from the sale of 50% of its stake in metropolitan life Insurance. 

When the extraordinary item in form of N1.53 billion income from the sale is added, profit after tax, total profit for the period came to N4.70 billion, representing 146% growth from N1.91 billion in 2015. 

 

Also, the loss on trading financial assets that dropped to negative position of N1.85 million from N23.46 million in 2015, did not affect the company as a result of the huge income from investments made within the period under consideration. This was despite the high risk in the financial market environment, especially with the decline in oil price in the international market that made the global and local financial markets unstable, especially with the ongoing recession facing the nation.

The up-trend in UCap's financials so far in the year has supported its share prices as it is currently trading at N2.51 per share, which is over 78% above it price of 1.38 when it released its report in 2015.

The market price of the stock is slightly above its book value, which is a fair value for discerning investors. The company’s book value currently stands at N2.06 and price to earnings ratio is 3.14x. Investors' waiting period has therefore reduced, as a result of improving earnings of the company.

UNITED CAPITAL PLC
THIRD QUARTER REPORT FOR  2016
COY	2015	2016	% Chg
	(N)	(N)
Date Released	October 15, 2015	October 6,  2016
Price as@Rel.Date	1.38	2.46	78.26
Gross Earnings	4,088,429,000	5.689,419,000	40
Profit After Tax	1,910,357,000	4,696,317,000	148
Shareholders' Fund	10,420,551,000	12,349,710,000	18.52
Earnings Per Share	0.32	0.78	144
PE Ratio	4.33	3.14
Earnings Yield	23.07	31.82	38
Book Value	1.74	2.06	18.39
Price to Book Value	1.26	0.84
ROE	18.00	38.00	111.11
Profit Margin	46.73	82.54	76.63
	Dec	Dec

  SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation/Recommendations

The continued improvement in the company's earnings is a major source of attraction for all stakeholders, regardless of the ongoing economic recession. The Q3 numbers is therefore an indication that the company would beat market estimates for 2016. Its current Book Value at N2.06 and profit margin of 82.54%, is the highest in the market today and signifies that the stock is fairly valued at the current market price on the strength of its Price-Earnings-Ratio of 3.14x, which is relatively okay in the market and Dividend Yield of 14.94% is attractive, despite the fact that it is below the current inflation rate. 

The company has consistently paid dividend since 2013 and on the strength of its numbers for Q3, the chances for a juicier dividend payout at the end of the year is high.The management's commitment to deliver outstanding services to drive performance will support price in the short and long run. Based on this reality, we advise investors in the stock to BUY and if you are there for dividend income,increase your stake as the year winds down gradually.  

Technical View 

UCAP has side trended for two months before forming a symmetrical triangle, which was breaking last week on positive sentiment but pullback that same week after touching a strong resistant level of 2.70 to close the period at 2.51. Traders should watch out for breakout at the yellow line for continuation up trend or reversal to first support level at 2.34 and second support price of 2.24. The strength of the trend is strong above 20 ADX. 

History 

United Capital Plc was established in 2002 and listed on the exchange in 2013 to provide financial services through its investment banking, Trustees, Asset Management and Stockbroking. The company's business capacity building and technology–driven has supported its status as a one-stop shop Investment outlet.

It was fully owned by United Bank for Africa Plc before being quoted on the NSE, thereby becoming a publicly owned company with its own shareholders. Its excellent service delivery in helping governments, corporate organizations and individuals to achieve their financial goals in the financial market has always supported its strong performance. 

Its 16 years of active role and  participation in deepening the Nigerian Financial Market has afforded the company opportunities to participate in various offers, including  financing of projects, financial advisory service, packaging of  Initial Public Offerings, Right Issues, Debentures, as well as corporate and government bonds

Management

It is true that the scorecard of a company is the shortest way to assess the management's competent and commitment. The earnings performance of this company revealed the caliber of its management and at the same time the strategic inputs in its products or services that is driving profitability. 

The impressive performance of UCap as shown in its latest result, points to the need to encourage the management to continue its good work of posting strong earnings that can support its share price. 

The management team should be even more proactive in capturing more market share and building its top line to further boost profit in an environment where competition is daily becoming keener.

Performance Analysis

Taking a critical look at the numbers posted over the period of four years, it is obvious that the business environment remains challenging but the company has remained resilient to continually post positive numbers that have supported payment of dividend, following which its share price has remained above the listing price in January 2013. 

But looking at the company's performance for the four-year period (2012 to 2015)reveals that the management has surpassed its forecast and projection given when it was listed on the exchange with consistent rewards to shareholders. 

Within the period, for example, the company consistently grown gross earnings and other performance indices.

Gross income for the period grew by 367.18 percent to N6.15 billion from just N1.34 billion of 2012.

Profitability level moved significantly, from N856.34 million in 2012 to N2.57 billion and representing 200.17% increase. This is very much in line with the commitment of management to grow earnings and manage cost as reflected in its profit margin for the review period, as it remain above the 15% international standard.
Shareholders' fund on the other hand, currently stands at N10.42billion from N3.85 billion in 2012 revealing an up trend in the last four years. 

The company’s dividend payment is a function of its strong earnings position for this period, but the recent improvement in payout calls for more input to sustain the tempo by consistently growing its earnings power.

UNITED CAPITAL PLC  FOUR YEARS FINANCIAL PERFORMANCE
	2012	2013	2014	2015
Date Released	Mar.22,2013	Mar. 31, 2014	Mar.13, 2015	Mar. 18, 2016
Price @ Released Date	1.34	2.55	1.38	1.70
Gross Earnings	1,342,055,000	4,573,241,000	4,676,602,000	6,153,729,000
Profit After Tax	856,337,000	1,763,011,000	1,846,348,000	1,447,938,000
Shareholders' Fund	3,849,912,000	8,381,272,000	9,076,455,000	10,420,549,000
Dividend	-	0.25	0.20	0.35

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Estimated Performance Ratios

The company's financial ratio for the period under review shows that the amount earned by investors and management were better at 43 kobo in 2015 than 14kobo in 2012; 29kobo in 2013; and 31 kobo in 2014. This is a reflection of the stable earning power of the company in an unstable-risk financial market. 

Price Earnings ratio is okay and attractive at the current estimate of 3.97x from a high of 9.39x in 2012. The last full year EPS is a yield of just 25.20% of the market price as of the release date. This simply signifies an improvement on the stock's valuation by the market as against the posted numbers. 

This was further indicated by the Book Value that ranges between the low of N0.64 and high of N1.74. The enhanced Book Value for the period resulted from the company improving upon and retaining some of it its earnings which moved from N1.85 billion in 2012 to N8.43 billion, this supported shareholders’ funds tremendously.  

 Putting this ratio and the market price of the stock side-by-side, signals opportunity for medium and long term investors. The profit margin of the company over the years have improved as management effectively controlled cost to boost profit. 

UNITED CAPITAL PLC  ESTIMATED RATIOS
	2012	2013	2014	2015
EarningsPerShare	0.14	0.29	0.31	0.43
PE Ratio	9.39	8.68	4.43	3.97
Earnings Yield	10.65	11.52	20.30	25.20
Book Value	0.64	1.40	1.51	1.74
ROE	23.71	21.10	26.92	31.56
Profit Margin	63.81	38.55	39.48	41.77
Year End	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

All Rights Reserved © Investdata Nig Ltd 2016
Ambrose Omordion
+2348032055467