Is UBA’s share Price surge justified?   

  • UBA’s stock price has surged impressively by 96.1% Year-to-Date (YTD), ranking it as the 29th best-performing stock on the NGX in 2023.
  • Analysts’ optimistic projections and “BUY” rating indicate a median target price of N14.45 and a high estimate of N31.00, reflecting positive market sentiment.
  • UBA’s trailing price-to-earnings (P/E) ratio of 2.8x, the lowest (excluding FBNH) among the five Tier-1 banks and lower than the NGX market P/E ratio of 8.3x, suggests the bank’s stock is relatively undervalued compared to its earnings, making it an attractive option for investors seeking robust returns.

United Bank for Africa (UBA) has been on a remarkable trajectory, with its stock price soaring by an impressive 96.1% Year-to-Date (YTD) as of the last trading day on July 21, 2023.

This impressive performance ranks UBA as the 29th best-performing stock on the Nigerian Stock Exchange (NGX) so far this year.

Over the past four weeks leading up to the mentioned date, UBA’s stock has accrued a substantial 30% increase, which positions it as the 27th best-performing stock on the NGX during that period.

These positive price movements indicate a strong upward trend for UBA’s stock and can be seen as encouraging signs for shareholders.

Strong Fundamentals and Positive Market Sentiment

The positive market sentiment is further emphasized by analysts’ “BUY” rating and their projection of a median target price of N14.45, with a high estimate of N31.00.

While investors need to exercise caution and consider various factors, the surge in UBA’s stock price appears to be justified based on its strong fundamentals and promising prospects.

UBA’s financial results for 2022 demonstrated a significant improvement in net income, surging by 43.48% from N118.678 billion in 2021 to N170.277 billion.

This impressive growth not only showcases the bank’s resilience in navigating challenges but also surpasses its strong 5-year compounded annual growth rate (CAGR) of 17.71%, indicating consistent and healthy net income growth over the years.

The positive performance continued into 2023, with a Q1 net income growth of 29% year-on-year to N61 billion, further boosting investor sentiment.

Moreover, UBA’s EPS growth outpaced its share price growth, signalling the potential for long-term value creation.

Attractive Valuation Metrics and Total Return Potential

Despite an impressive EPS growth of 42.77% in 2022, the share price recorded a Year-to-Date (YTD) gain of -5.71%, suggesting an undervalued stock.

However, in Q1 2023, EPS growth was slightly lower at 28.95%, while the share price grew by 3.90% year-on-year, indicating steady progress.

The favourable market sentiment was further bolstered by recent government policies positively impacting the banking sector.

The elimination of fuel subsidies, unification of the exchange rate, and an anticipated interest rate hike to counter rising inflation all contributed to boosting investor confidence in UBA’s potential.

During the second quarter (Q2) of 2023, UBA’s share price surged by approximately 53%, reflecting growing confidence and interest among investors.

This significant growth was also reflected in the broader market performance, with the NGX banking index gaining 42.49% in Q2 compared to 5.75% in Q1.

Additionally, the NGX All-Share Index (ASI) increased by 12.42% in Q2 compared to 5.11% in Q1, indicating a positive trend across the market.

UBA’s valuation metrics further support the justified investment sentiment. The bank’s trailing price-to-earnings (P/E) ratio of 2.8x, the lowest among the five Tier-1 banks (excluding FBNH), and lower than the NGX market P/E ratio of 8.3x, suggests that the stock is relatively undervalued compared to its earnings.

This implies that investors may be paying less for each unit of earnings generated by the bank compared to its peers in the Tier-1 banking category.

Additionally, UBA’s Return on average equity (ROAE) increased from 19.7% to 22.6% in Q1, further reassuring investors of the bank’s commitment to maximizing shareholders’ wealth.

Furthermore, the current dividend yield stands at 7.38%, along with the impressive YTD share price return of 96.1%, resulting in a total return of 103.48%.

A Compelling Case for Investment

This combination of capital appreciation and dividend income potential makes UBA an attractive choice for investors seeking robust returns.

UBA’s impressive share price growth and earnings surge are supported by its strong fundamentals, positive market sentiment, and attractive valuation metrics.

While investors should always approach investment decisions with caution and conduct a comprehensive analysis, UBA’s performance and outlook present a compelling case for a justified investment.

As always, investors should align their investment decisions with their financial goals and risk tolerance to make informed choices in the dynamic market environment.

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