UBA Partnership With AfCFTA to Improve Earnings, Deepen Customer Base

United Bank for Africa (UBA) Plc is poised to deliver stellar performance in the final quarter of the year as the lender’s proposed partnership programme with African Continental Free Trade Area (AfCFTA) is expected to improve earnings and deepen customer base, according to research house Chapel Denham.

The pan African lender said its collaboration with AfCFTA is aimed at financing small and medium enterprises (SMEs) across Africa with a total of $6 billion.

That presents an opportunity for investors to own the stock of a company that has been consistently recording double digit growth in earnings and its attractive valuation is an entry point for new investors.

It is interesting to note that UBA has supported 22,000 small and medium enterprises (SMEs) so far, according to its Half-Year financial statement.

Small businesses are pivotal to the growth of the Nigeria’s economy because over half of working population are in the informal sector

The International Labour Organisation (ILO) has disclosed that micro, small and medium enterprises (MSMEs) contribute 48 percent of Nigeria’s National Gross Domestic Product.

“In Nigeria, SMEs contribute 48 percent of national GDP, account for 96 percent of businesses and 84 percent of employment. This sector contributes significantly to alleviating poverty and increasing job creation,” said Vanessa Phala, The Country Director of ILO.

The UBA/AfCFTA agreement is focused on import substitution across four key sectors: pharmaceuticals; transport and logistics, agro-processing and automotive industries; in a bid to foster intra Africa-trade, and reduce foreign exchange (FX) risks on the businesses in those sectors.

UBA’s second quarter (H1-2023) was outstanding as it delivered the fastest profit after tax (PAT)  expansion (5.4 times) and the highest (N378.24 billion) among tier 1 peers, accounting for 30 percent of the cumulative PAT delivered by tier 1 banks, according to analysts at Chapel Hill Denham.

Analysts at Chapel Hill Denham Limited have maintained their buy ratings on UBA, basing their preference of the stock on a price to book ratio of 0.30 and a 32.30 percent discount to the 0.50x of its tier 1 peers as the bank’s shares have gained 126.32 percent since the start of the year.