United Bank for Africa (UBA) delivered a strong performance in the first quarter of 2025, recording a 37.3% year-on-year (y/y) growth in gross earnings — a result driven by a solid 36.1% rise in core income and a striking 44.2% jump in non-core income. Analysts have responded by revising their full-year earnings forecast upward, now expecting a 26.7% y/y increase in 2025.
However, despite the robust top-line performance, analysts are urging caution.
While the bank’s outlook remains officially positive — with a slightly raised target price of NGN58.28 per share (previously NGN57.42) and a maintained “BUY” recommendation — deeper financial indicators raise concerns about future profitability. UBA is expected to declare a final dividend per share (DPS) of NGN5.10 in 2025, translating to a generous 14.8% yield based on its last traded price of NGN34.50 (as of May 7). Still, this figure may not fully reflect investor apprehensions about slowing earnings growth.
One red flag is the projected earnings per share (EPS) for 2025, which is forecast to rise only marginally by 0.3% to NGN21.80. This weak growth is largely attributed to a 6.84 billion increase in outstanding shares — a dilution effect that significantly offsets otherwise strong operational performance. Moreover, the post-tax profit (PAT) is expected to grow by just 16.7% y/y, a sharp slowdown from the previous year, primarily due to the non-recurrence of a one-time NGN181.92 billion tax credit booked in 2024.
Despite the challenges, UBA has made commendable strides in cost efficiency. The group improved its cost-to-income ratio (CIR) to 52.9% in Q1 2025 from 57.8% in Q1 2024, helped by a 19.9% growth in operating income and more modest 12.3% growth in expenses. Gains on investment securities (+230.6%) and steady growth in net fees and commission income (+15.7%) also played a role. However, sustainability of these gains remains a question mark amid broader economic uncertainty.
Valuation models continue to present mixed signals. The blended target price of NGN58.28/s draws from a combination of Dividend Discount Model (DDM), Gordon Growth Model (GGM), and peer-relative metrics — with target estimates ranging from NGN32.27/s to NGN69.38/s. The wide spread underscores investor caution and valuation complexity.
UBA currently trades at a modest 2.7x 2025E P/E and 0.5x P/B, reflecting a valuation discount compared to peers — and perhaps, market skepticism despite stellar earnings growth.
While UBA’s pan-African operations and income diversification remain strengths, its slowed EPS growth, share dilution, and one-off tax benefits pose key risks investors must monitor closely as the year progresses.
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