UBA Hybrid Offer

[ghm]

It was announced today that United Bank For Africa (UBA) was placed on technical suspension at N37.99 following their application for Hybrid Offer.

At What price do you think it will be a good buy?
How much do you think the Right Issue and the Public offer will be?

Let's think of this as we await the final announcement.

[dtrader]

I am thinking that most companies will raise capital to enjoy that highs of most stock , UBA maybe 33or 34naira , dont see anything under 30naira .

[c kenneths]

So is that why they had been manipulating their share price to force it to =N= 37.99? eell if they are not selling at =N= 30.00, then I am not buying.

[edosag]

I see it going for N36.00 and Rights issue selling for N35.00

[ghm]

UBA TODAY ANNOUNCED THAT IT WOULD BE RAISING N54 BILLION VIA A COMBINED OFFER FOR SUBSCRIPTION AND RIGHTS ISSUE OF 1,551,000,000 ORDINARY SHARES OF N0.50 EACH. THE OFFER IF FULLY SUBSCRIBED WOULD INCREASE THE BANK'S SHAREHOLDERS FUNDS TO N102 BILLION. THE BANKS IS SEEKING TO RAISE N14,402,400,000 BY WAY OF RIGHTS AND N39,459,000,000 FROM THE OPEN MARKET.

THE RIGHTS ISSUE OF 1 FOR 20 IS BEING OFFERED AT N34 PER SHARE WHILE THE PUBLIC OFFER IS BEING OFFERED AT N35 PER SHARE

Is it really a Good buy???

@edosag,

you are too much your prediction was so close to the announcement!!!

[Antons697]

UBA manipulated their share price up, just to raise capital at an exhorbitant rate of 35/share. I don't know what you guys think but this is way to high!

[SKO]

Considering the recent performance of the bank and its outlook, I believe this is a great strategic buy. What I intend to do is to balance it out with the Oceanic Int'l Bank offer of N16.50. i.e. for every 4 Oceanic shares, I'll pick up just 1 UBA share. The strategy is that of the fastest growing pitted against the "heaviest" in the banking sector.

My own "hybrid" purchase strategy...

[ghm]

My own concern is the % discount. It's only 8% whereas Oceanic is 16%, Diamond bank is more than 20%, Intercontinental and Zenith banks last year were 16% & 13% respectively.

[Antons697]

My other question will be what do you think UBA market price would have been at this time if not for the technical suspension? In view of the recent decline in banks stock price,UBA would probably be around N35 now in the market. Making this offer a no discount offer.

[Stockbear]

Hope this helps someone.

Deleted due to copyright infringement. - EIC

[Stockbear]

Where is the price heading? January Review:

Where are the shares of UBA (Nigeria) Plc. headed?
Posted Monday, January 8, 2007

The last time I profiled UBA stocks in my November 28, 2006 article titled “Is the Decline in Bank Stocks an Ominous Sign for the NSE?” the stock closed at N21.96 and was in a downward trend. It had violated its 20 days simple moving average of 25.39, its 50 days simple moving average of 25.5, and threatening to test its 200 day moving average of 17.23.
However, on January 8, 2007 the stock closed at 27.95 which is approximately 5.99, or 27.2% increase from its November 2006 low. When the stock was declining in November 2006, the entire NSE market and especially the banking sector was in a downtrend.

Nevertheless, UBA shares has reversed course and broken through almost all its minor resistance at the January 8, 2007 stock closing price.

What has caused the reversal of fortune for this stock? It appears that the stock reversed course about December 14, 2006 around the period the company reported its financial numbers for the 18 month period ended September 30, 2006. The report indicated that UBA's deposit base soared by 278 percent, from N205 billion in 2005 to N776 billion in 2006 while its gross earnings rose by 247 percent, from N26.1 billion in 2005 to N90.47 billion in 2006.

Additionally, the bank proposed of N1 dividend per share plus a bonus of 1 share for every 5 shares currently held. While the reported numbers were very impressive by any standard, one is left to wonder why UBA reported an 18 months financial position instead of a 12 month financial position. An 18 month financial statement is unconventional by any accounting standard (domestically or internationally)
Technically: The stock is less than N1 away from N28.66, the previous 52 week high it attained on October 17, 2006. Technically the stock price has risen above all its pertinent simple moving averages (20, 50, 100, & 100 days) as highlighted in the schedule below. However, this stock would have to break through the N28.66 (the previous 52 week high) before it moves higher. The previous 52 week high would be a strong resistance. If it breaks through that resistance the next major resistance would be N30, and if it breaks through N30, the stock could test N38.89, the first Fibonacci target.

SMA 1/8/2007 Share Price Above or Technical
UBA Prices Closing Price below SMA Grade
10 Day SMA 26.07 27.95 1.88 Very Strong
20 Day SMA 25.48 27.95 2.47 Very Strong
50 Day SMA 25.31 27.95 2.64 Very Strong
100 Day SMA 24.36 27.95 3.59 Very Strong
200 Day SMA 19.52 27.95 8.43 Very Strong

Conclusion:
It appears the shares of UBA is firing on all cylinders and baring any political upheaval or unforeseen events that would cause investors to lose faith in the Nigeria economy and NSE, this stock is likely to repeat the feat performed by the shares of First Bank Nigeria in 2006. Another bank stock that investors should look out for is GTB. It also appears to be breaking out of its trading range. It has moved above its 52 week moving average and it is likely to trade up to the mid twenties; considering all technical indications and stability in the market.

However it should be noted that there was a recent N8 billion judgment against UBA. From what I read in the press, the bank has already paid out some portion of the judgment amount. It would be very pertinent for the bank’s management to assure investors that the payment will not have any negative impact on the proposed dividend payment, the operations of the bank, or previously provided financial projections.

[ghm]

In addition to what Stockbear published on this offer; these are additional information

1. Online Offer
UBA launches the first ever online public offer.
here is the link http://www.ubaoffer.com/

2. Prospectus
You can also find the prospectus in this link
http://www.ubaoffer.com/UBAProspectus.pdf.

I have gone through the prospectus and taking time to make my decisions.

[SKO]

I may be wrong, but I seriously doubt that this offer will be fully subscribed at this obscene price (in the Nigerian context of the Banking landscape). At least not with the Oceanic Offer in play at the same time.

I don't doubt that the stock has a great potential for long-term appreciation but the offer price is a sticking point at this time.

Those more enlightened amongst us should please correct my ignorance. Thanks.

[Stockbear]

CTSL considers UBA a long-term buy, which to me means don't expect capital appreciation in the short term. What do you think?

This is a short version. File too large for uploading

Analysis and Recommendation

Capital Adequacy

The paid-up share capital of UBA increased by 130.72% to N3.53billion in September 2006 from N1.53billion in March 2005. The increase in the share capital came from the allotment of 4billion Ordinary Shares of 50kobo each to the shareholders of former STB in line with their scheme of merger. The shareholders fund (which includes revaluation of fixed assets reserves) increased by 167.46% to N41.67billion in 2006, well above the minimum capital requirement of N25billion for Nigerian banks.

Total assets also jumped up by 253.06% to N884.14billion. Its total assets and contingent liabilities stood at N1, 051billion in 2006 making it the biggest bank in Nigeria. Earnings assets grew by 248.40% to N850.95billion in 2006 from N244.22billion in 2005 while Fixed Asset leaped up by 437.42% to N33.19billion in 2006. The proportion of shareholders’ funds to total assets dropped to 4.71% in 2006 from 6.22% as a result of higher proportionate growth in all the balance sheet items

(with the exception of loan and advances) than equity growth. Equity to total loan and advances increased to 37.91% in 2006 from 23.04% in 2005 as a result of less
proportionate growth in the loan and advances than the equity growth. However, the proportion of equity that is tied down in non- income earning assets increased to 79.66% in 2006 from 39.64% in 2005.

Assets Quality

Gross loans and advances increased by 70.85% to N119.74billion in 2006 from
N70.09billion in 2005 while total classified loans increased more proportionally by
523.76% to N15.10bilion in 2006 from N2.42billion in 2005. Therefore the proportion
of classified loans to total loans increased to 12.61% in 2006 from 3.45% in 2005. At
12.61%, the non-performing loan to total loans is above the industry average of 10%.
Should the non-performing loans turn bad, 36.23% of the shareholders fund will be
reduced as against 15.53% in 2005. However, 65.23% of the non-performing loans was
provided for in 2006.

Profitability

Gross earnings grew by 246.69% to N90.45billion in 2006 from N26.09billion in 2005.
Interest income grew by 299.09% to N57.69billion in 2006 from N14.47billion in 2005
while non-interest income increased by 181.56% to N32.75billion in 2006 from
N11.63billion in 2005. It is worth mentioning that the Compound Annual Growth
Rate (CAGR) in gross earnings, interest income and non-interest income between
2002 and 2006 was 41.56%, 40.12% and 44.30% respectively. Interest income as a
proportion of gross earnings stood at 63.79% in 2006 up from 55.41% in 2005 while
the non- interest income as a proportion of gross earnings stood at 36.21% in 2006
down from 44.59% in 2005.
Growth in interest expenses outpaced the growth in interest income both between the
two most recent years and in the last five years. Interest expenses rose by 672.32% to
N26.95billion in 2006 from N3.49billion in 2005 leading to a CAGR of 51.94%
between 2002 and 2006. Consequently, net interest income increased by 180.31% to
N30.74billion in 2006 from N10.97billion in 2005 while the CAGR in interest income
only stood at 32.72% between 2002 and 2006.
Return on capital employed (core capital) declined to 36.29% in 2006 from 39.51% in
2005, return on equity maintained the same trend to 22.50% in 2006 from 29.25% in
2005, though still higher than the industry average which is about 20%. Return on total
assets also declined to 1.39% in 2006 from 2.46% in 2005, this is below the industry
average of 2.9%. The decline recorded in the returns on assets, equity and core capital
was attributable to the expanded capital base of the bank which put pressure on earnings.

Management Efficiency

Operating expenses increased by 178.75% to N41.79billion in 2006 from
N14.99billion in 2005 and recorded a CAGR of 36.60% between 2002 and 2006. Staff cost which stood at N17.48billion in 2006 up from N6.84billion in 2005 accounted for 41.83% of the operating expenses in 2006 down from 45.63% in 2005.

A more proportionate growth in the major expense items than the income between 2005 and 2006 led to declining pre- tax and post-tax profit margins. Pre-tax profit margins declined from 24% in 2005 to 12% in 2006 while post-tax profit margin declined from 17% in 2005 to 10% in 2006. Despite the growth of 155.50% and 23.03% in staff cost and number of employees respectively between the two years, the contribution of each employee to the pre-tax profit increased to N2.28billion in 2006 from N1.63million in 2005 while staff cost accounted for 19.33% of the gross income down from 26.22% in 2005.



Liquidity

The bank’s deposit liabilities of N776.14billion are made up of 34% in demand
deposit, 28% in tenored deposit, 12% in savings account and 27% in domiciliary account. The high cost funds (tenored) to the bank is 28% of its total deposit liabilities as against the industry average of 31% while the low cost funds to the banks is 72% of it total deposit liabilities as against the industry average of 69%. As a result of the mix of deposit liabilities, the bank cost of funds which stood at 3.47% is lower than the industry average of 4%.

The bank maintained a healthy liquidity position as the ratio of cash and bank balances to total deposit liabilities stood at 55.99% up from 47.06% in 2005 and well above the 40% minimum requirement of bank in Nigeria. We note that in computing the liquidity ratio for banks, CBN allows banks to include treasury bills holding and 1-3- year FGN Bonds. If we have added these instruments to the cash and bank balances of UBA, it would have achieved a higher liquidity position.

The proportion of total deposits that was channeled into loans and advances reduced to 14.16% in 2006 from 32.96% in 2005. In a similar development, the proportion of total assets that was channeled to loans and advances in 2006 reduced to 12.43% from 27.00% in 2005. The declining net-interest margin in the banking industry as a result of stiff competition may have been responsible for this development as bank now develop other fees-based and commission generating income.


Investment Analysis

Investment in UBA over the years has proved to be a worthwhile investment, in terms of capital appreciation, cash and scrip dividends payment. An investment of N100,000 in UBA stock on January 03, 2000 is worth N1,550,060.53 if the dividends accrued to the investment have not been invested in an interest bearing assets or N1,660,750.97 if the dividends have been investment in an interest bearing asset of 7.00% per annum.

Our analysis shows the 1 unit of UBA stock traded at N8.60 on January 03, 2000. If the cost of transaction is deducted from the principal, the amount would have purchased 11,155 units of UBA shares in 2000, which as at the date of this report stood at 40,961 units as a result of scrip dividend. The accumulated total dividend earned less 10% withholding tax stood at N93,354 if not invested. If the dividend had been investment in an interest bearing assets at a 7% compounded interest rate, it would have grown to N107,645. The value of the investment based on the market price of N37.99 is N1,650,060.53 or N1,663,750.97 with a total profit of N1,550,060,53 or N1,563,750.97, thus returning 1,550% or 1,564% over the period.

Therefore, an investment of N100,000 has translated to a CAGR of 59.78% between 2000 and 2006.

Forecast

Based on the PAT forecast of N16.53bn, N22.67bn and N28.37bn for the period ending 2007, 2008 and 2009, respectively and applying appropriate discounting rate and earnings multiple, our fair value for UBA is N40.16 per Ordinary Share of 50kobo each. The stock is currently trading at N37.99 on the floors of the Nigerian Stock Exchange (NSE) therefore the Offer price of N35.00 is at 8.54% discount to the market price and 14.74% discount to our fair value. We therefore assign the stock a LONG-TERM BUY at the current Offer Price.

Research Team: Ayodele Akinwunmi
Peju Adelakun
E-mail: research1@counterstrust.com
research2@counterstrust.com

[panasharp]

I am sure this analysis makes a lot more sense to those who are use to financial presentations based on Nigeria accounting standards or those familiar with that industry in general.

Originally Posted by Stockbear

Assets Quality

Profitability

[color="Red"]Growth in interest expenses outpaced the growth in interest income both between the two most recent years and in the last five years. Interest expenses rose by 672.32% to N26.95billion in 2006 from N3.49billion in 2005 leading to a CAGR of 51.94% between 2002 and 2006. Return on capital employed (core capital) declined to 36.29% in 2006 from 39.51% in 2005, return on equity maintained the same trend to 22.50% in 2006 from 29.25% in 2005, though still higher than the industry average which is about 20%. Return on total assets also declined to 1.39% in 2006 from 2.46% in 2005, this is below the industry average of 2.9%. The decline recorded in the returns on assets, equity and core capital was attributable to the expanded capital base of the bank which put pressure on earnings.

The increase in interest expense would concern me as a potential investor. If I am reading this right, the cost of fund to the bank is higher than what it gets in interest. I would be interested in finding out why.

Management Efficiency

[color="Red"]Operating expenses increased by 178.75% to N41.79billion in 2006 from N14.99billion in 2005 and recorded a CAGR of 36.60% between 2002 and 2006. Staff cost which stood at N17.48billion in 2006 up from N6.84billion in 2005 accounted for 41.83% of the operating expenses in 2006 down from 45.63% in 2005. A more proportionate growth in the major expense items than the income between 2005 and 2006 led to declining pre- tax and post-tax profit margins. Pre-tax profit margins declined from 24% in 2005 to 12% in 2006 while post-tax profit margin declined from 17% in 2005 to 10% in 2006. Despite the growth of 155.50% and 23.03% in staff cost and number of employees respectively between the two years, the contribution of each employee to the pre-tax profit increased to N2.28billion in 2006 from N1.63million in 2005 while staff cost accounted for 19.33% of the gross income down from 26.22% in 2005.

The increase in operating expense is certainly of concern from N6.8bn to N17.5, knowing that it is due to labor cost is of greater concern. But then is this the norm with Nigerian companies or banks operating in the country?

Liquidity

The bank’s deposit liabilities of N776.14billion are made up of 34% in demand
deposit, 28% in tenored deposit, 12% in savings account and 27% in domiciliary account. The high cost funds (tenored) to the bank is 28% of its total deposit liabilities as against the industry average of 31% while the low cost funds to the banks is 72% of it total deposit liabilities as against the industry average of 69%. As a result of the mix of deposit liabilities, the bank cost of funds which stood at 3.47% is lower than the industry average of 4%.

The bank maintained a healthy liquidity position as the ratio of cash and bank balances to total deposit liabilities stood at 55.99% up from 47.06% in 2005 and well above the 40% minimum requirement of bank in Nigeria. We note that in computing the liquidity ratio for banks, CBN allows banks to include treasury bills holding and 1-3- year FGN Bonds. If we have added these instruments to the cash and bank balances of UBA, it would have achieved a higher liquidity position.

The proportion of total deposits that was channeled into loans and advances reduced to 14.16% in 2006 from 32.96% in 2005. In a similar development, the proportion of total assets that was channeled to loans and advances in 2006 reduced to 12.43% from 27.00% in 2005. The declining net-interest margin in the banking industry as a result of stiff competition may have been responsible for this development as bank now develop other fees-based and commission generating income.

This section of the analysis raises more question than answers in my opinion.

I am sure as our market continue to develop information on companies will continue to increase and easily accessible to investors.

Most of the ratios, comparison, and analytical facts does not ring a bell especially when one uses the US market as a frame of reference. But then, it could be due to lack of familiarity with financial presentation by banks in general.

By the way, this is an interesting forum.

Happy Investing.

[Stockbear]

Since the UBA PO roadshow began I have often wondered how well subscribed the offer will be. The general consensus seems to be that the PO is overpriced.

If so, how does this affect the outcome of the offer? Do we as the public/investors call the shots? Do we determine the value placed on stock or do the board of directors/shareholder call the shots, telling us what to pay for their stock?

This clear consensus seems to be shared by stockbrokers alike. If this holds true as being reported, both in the news and in stockbrokers' market review, it seems UBA's offer stands little chance of success!

Is their anyone in the house intending to or has bought into the offer? Yes or no, please share your reasons why you intend to buy or not buy the offer.

BusinessDay
April 11th, 2007
UBA justifies offer price on expected earnings


UBA Global Markets Limited said the on-going N54 billion hybrid offer of its parent organisation, UBA Plc, is appropriately priced. Sonnie Ayere, Managing Director and Chief Executive of UBA Global Markets, the capital market arm of UBA Plc stated this as he gave insights into the offer.