UNITED CAPITAL: BEATING EXPECTATIONS, DELIGHTING INVESTORS WITH JUICY DIVIDEND

The management of United Capital last week released its full-year earnings report for the period ended December 31, 2016 to the Nigerian Stock Exchange (NSE), rekindling investors interest and confidence again, being one of the early filers. It isat the same time thefirst quoted company with December year-end to declare an impressive dividend on the strength of its significantly improved numbers and despite the country’s gloomy economic situation that had affected all sectors and companies operating therein. 

This impressive scorecard of a leading investment company is a consolidated solid quarterly performance driven by the management’s commitment to deliver value toclients and shareholders alike,regardless of the harsh operating environment. This is not forgetting the unstable financial market outlook due to a lack of economic direction that has persisted till date. 

Thecompany has remained committed to its core operational areas of investment banking, issuing house, corporate advisory services, project finance, debt restructuring, merger/acquisition and debt capital marketswith other subsidiaries that are into asset management, securities trading and trusteeship. These were backed by aggressive product innovation and marketing, driven by robust technology and professionalism to deliver satisfactory services in an efficient manner, while ensuring cost and risk management were up as reflected in the profit margin. 

A breakdown of the proceeds of N3.18 billion from the sale of its 50% stake in UBA metropolitan Life Limited, worth N2.27 billion in investment and profit of N909.70 million, representing 40% Returns on Investment, which is a plus for the company and its management in terms of transparency. The company, outside the one-off sale or extraordinary income has done excellently well in its core businesses as revealed by its profitability ratios for the period under review. 

The gross earnings for the year was up by  46.34%toN9.00 billion from N6.15 billion in 2015,driven by investmentfees and transactions from the core service area of the company.

Within the period also, earnings power grewby 133.5% to N6.00 billion from N2.57 billion in 2015 without factoring in the income from the sale of 50% of its stake in metropolitan Life Limited, which produced Earnings Per Share (EPS) of N1.00 outside extraordinary profit. The total profit for the period came to N6.91 billion, representing 168.87% growth from N2.57 billion in 2015.

Also, the Impairment charges on trading financialassets dropped to negative position of N33.51 million from N666.66 million in 2015, this is as result of improved  risk management, as well as the huge income from investments made within the period under consideration. 

The uptrending earnings and surprises of the company’s fundamentals supported the 118.38% growth in price between the released date of march 18, 2016 to February 16, 2017.

The stock is currently selling at premium above its book value of N2.37and Price to Earnings (P/E) ratio of 3.20x. Investors' waiting period has therefore reduced, as a result of the improved earnings recorded by the company.Its retained earnings for the period also improved by 57.18% to N13.25 billion from N8.43 billion in 2015.

UNITED CAPITAL PLC
FULL YEAR 2016 EARNINGS REPORT
COY	2015	2016	% Chg
	(N)	(N)
Date Released	March 18, 2016	February 16,  2017
Price as@Rel.Date	1.69	3.69	118.34
Gross Earnings	6,153,729,000	9,000,955,000	46.34
Profit After Tax	2,570,472,000	6,913,526,000	168.87
Shareholders' Fund	10,420,551,000	14,237,932,000	36.66
Dividend Payout	0.35	0.50	42.86
Earnings Per Share	0.43	1.15	167.44
PE Ratio	3.94	3.20	-18.78
Earnings Yield	25.35	31.23	23.20
Book Value	1.74	2.37	36.21
Price to Book Value	0.97	1.56	60.82
ROE	24.67	48.56	96.84
Profit Margin	41.77	76.81	83.89
	Dec	Dec

  SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation/Recommendations

UCap’s growing and impressive numbers are the major point of attraction for investors and traders,despite the economic recession and unstable global and domestic financial markets. Its 2016 numbersare indicative of whereit would be at a time new businesses are already coming on stream for the new financial year.

Its current Book Value at N2.37 and profit margin of 76.81%, is the highest so far in the market today and signifies that the stock is fairly valued at the current market price on the strength of its P/E ratio of 3.20x, which is relatively okay; just as the Dividend Yield of 13.55% is attractive, irrespective the current inflation rate in the country. 

The increasingly consistent dividend payout by the company since 2013 is another point of attraction, as it reveals the potential in the company and the nature of its services which is economic and business development. Based on this reality, we recommend BUY for medium and long-term investors 

Technical View 

 

UCAP in 2016 formed a rising channel that was trendy with different pullbacks that created buy opportunities within the channel but finally broke out its strong resistant level of N3.90 per unitto an all-time high of N4.06. Traders should watch out for breakout of the upper channel’s blue trend line for continuation of the up-trend or reversal to first support level at N3.73and second support price of N3.50 per share. The strength of the trend is strong as ADX is above 20 reading 50.28

History

United Capital Plcwas 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 then 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 organisations and individuals to achieve their financial goals inthe financial market has always supported its strong performance. 

Its 17 years of active participation inhelping to deepenthe Nigerian Financial Market has affordedthe 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

The Chika Mordi and OluwatoyinSanni  led boardand management have demonstrated commitment and tenacity  in plotting the affairs in delivery value for all stakeholders  as revealed by the scorecard in the last four years since becoming listed on the exchange. The earnings performanceshows the calibre of its management and at the same time the strategic inputs in its products or services that is driving the high power profitability level.
The notable performance of the company as revealed in the 2016 financials, points to the need to encourage the management to remained active and focus on driving its business model that producesstrong earnings that can support its share price going forward. 

Performance Analysis

The company's performance for the four-year period (2013 to 2016)reveals that the management has surpassed its forecast and projection it gave when it was listed on the exchange with consistent growth in earnings power and rewards to shareholders.

Within the period, for example, the companyhas consistently grown its gross earnings and other profitability ratios.

Grossincome for the period grew by 96.94%from N4.57 billion to N9.00 billion in 2016, also the profitability level moved significantly, from N1.76 billion in 2013 to N6.91 billion and representing a 292.61% 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. 

Net assets of the company, currently stands at N14.23billion from N8.38 billion in 2013 revealing an uptrend in the last four years.

Thecompanyhas paid a total dividend of N1.30 since it became a quoted, a function of its strong earnings position for this period, but the recent two-yearimprovement in payout calls for more input to sustain the tempo by consistently growing its earnings power.

UNITED CAPITAL PLC  FOUR-YEAR FINANCIAL PERFORMANCE
	2013	2014	2015	2016
Date Released	Mar. 31, 2014	Mar.13, 2015	Mar. 18, 2016	Feb. 16, 2017
Price @ Released Date	2.55	1.38	1.70	3.69
Gross Earnings	4,573,241,000	4,676,602,000	6,153,729,000	9,000,955,000
Profit After Tax	1,763,011,000	1,846,348,000	2,570,472,000	6,913,526,000
Shareholders' Fund	8,381,272,000	9,076,455,000	10,420,549,000	14,237,932,000
Dividend	0.25	0.20	0.35	0.50

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Estimated Performance Ratios

Performance ratios for the period under review shows that the amount earned by stakeholderswere significantly better at 115 kobo, than the 29kobo in 2013 when it became a public company, increasing yearly from 31kobo in 2014; to 43 kobo in 2015. This is a reflection of the stable and up-trending earning power in an unstable-risk financial market. This shows how resilient the company has been. 

Price Earnings ratio isokay and attractive at the current estimate of 3.20x from ahigh of 8.68x in 2013. The last full year EPS is a yield of just 31.23% 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.

The Book Value of the company moved from N1.40 in four years to N2.37 as the share price equally moved from the price of N1.30as of listing date to N3.82. The enhanced Book Value for the period resultedfrom the company improving upon and retaining some of it its earnings which moved from N6.72 billion in 2013 to N13.25 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
	2013	2014	2015	2016
Earnings PerShare	0.29	0.31	0.43	1.15
PE Ratio	8.68	4.43	3.97	3.20
Earnings Yield	11.52	20.30	25.20	31.23
Book Value	1.40	1.51	1.74	2.37
ROE	21.10	26.92	31.56	48.56
Profit Margin	38.55	39.48	41.77	76.81
Year End	Dec	Dec	Dec	Dec

SOURCES: COMPANY DATA & INVESTDATA RESEARCH