United Capital Plc just like other investment banking firms have continued to face multiple challenges arising from a weak macroeconomic environment, which have continued to drain their bottom lines. Chris Ugwu writes
Nigerian financial institutions faced multiple threats from the operating environment in 2016, which was exasperated when the country slid into recession.
The economy has continued to suffer from low oil prices and severe shortages of foreign currency.
Consequently, the financial institutions have also continued to struggle with declining profits, sluggish credit growth, asset quality deterioration, tight foreign currency liquidity and weakening capitalisation. All these have increasingly put pressure on their credit profiles.
This is not unconnected with lower loan demand, higher impairments from oil & gas exposures and increasing regulatory capital requirements.
The fall in crude prices had heightened pressure on the Nigeria’s foreign reserves and the domestic currency, leading to the volatility in exchange rate and a dip in foreign reserves.
These microeconomic pressures and unrelenting regulatory adjustments, had to a large extent constrained the margins of financial institutions in the country.
According to market watchers, the outlook for the rest of 2017 is not much brighter. They believe that financial institutions will continue to face extremely tight foreign currency liquidity despite the authorities’ efforts to normalise the foreign-exchange (FX) interbank market and improve the supply of dollars.
It is acknowledged that the financial sector of the economy can only be as healthy as the economy itself. And since the sector is not immune to the macroeconomic distortions, it is expected that the industry feels the effect of the turbulence.
The investment banking industry is one sector that was not insulated against the persistent macroeconomic headwinds that had weakened consumer purchasing powers and eroded earnings of companies.
United Capital Plc, one of the African investment banking groups in the country whose financials had maintained a stable trend, has began to deteriorate.
The company, which sustained impressive performance during the financial year 2016, began to recede from Q12017 when it showed signs of downswing, closing the second quarter of 2017 with a 44.39 per cent decrease in net earnings.
However, the company’s share price, which closed at N2.34 per share last September, has grown considerably that when the closing bell gong rang last Friday, the price stood at N3.15 per share, an increase of 81 kobo or 34.62 per cent year to date.
United Capital Plc (formerly UBA Capital Plc) began the year 2016 on a favourable note with 61 per cent increase in net earnings for the first quarter ended March 31, 2016.
In a filing with the Nigerian Stock Exchange, the group’s profit after tax grew to N1.137 billion from N707.424 million in the same period of last year, indicating a growth of 60.72 per cent.
Similarly, profit before tax rose by 59.22 per cent from N892.451 million in Q1 2015 to N 1.421 billion in Q1 2016.
In the same breath, gross earnings surged to N1.856 billion, compared to N1.306 billion last year, a growth of 42.1per cent.
The company also recorded 155 per cent increase in net earnings for the half year ended June 30, 2016.
The group’s profit after tax increased to N3.591 billion from N1.408 billion in the same period of last year, indicating a growth of 155.04 per cent.
Profit before tax grew by 44.02 per cent from N1.792 billion in H1 2015 to N 2.581 billion in H1 2016.
Its gross earnings rose to N3.655 billion, compared to N2.750 billion last year, a growth of 32.90 per cent.
United Capital continued the trend in improving bottom line during the third quarter, recording 145.92 per cent increase in net earnings for the period ended September 30, 2016.
The group’s profit after tax grew to N4.697 billion from N1.910 billion in the same period of last year, depicting a growth of 145.92 per cent.
Profit before tax moved up by 65.3 per cent from N2.397 billion in Q3 2015 to N 3.962 billion in Q3 2016.
Its gross earnings rose to N5.689 billion, compared to N4.088 billion last year, a growth of 39.16 per cent.
The company sustained growth trajectory, closing the financial year 2016 in the green with 168.98 per cent increase in net earnings for the financial year ended December 31, 2016.
The group’s profit after tax inched up to N6.913 billion from N2.570 billion in the same period of last year, translating to a growth of 168.98 per cent.
Profit before tax surged by 95.09 per cent from N3.263 billion in 2015 to N 6.366 billion in 2016.
Its gross earnings rose to N9.000 billion, compared to N6.153 billion last year, a growth of 46.27 per cent.
Based on these financials, the directors have recorded a dividend of N3 billion, which translates to 50 kobo per share, up by 42 per cent from 35 kobo paid in 2015.
However, signs of drop in bottom line had emerged when United Capital posted marginal increase in net earnings for the first quarter ended March 31, 2017.
The group’s profit after tax inched up to N1.172 billion from N1.137 billion in the same period of last year indicating a growth of 3.07 per cent.
However, the group, which began the year bullish, saw profit before tax dropping by 1.83 per cent from N1.421 billion in 2016 to N 1.395 billion in 2017.
Its gross earnings rose to N2.113 billion, compared to N1.856 billion last year, a growth of 13.85 per cent.
True to predictions, taking a cue from the first quarter, United Capital earnings receded in the second quarter, posting 44.39 per cent decrease in net earnings for the half year ended June 30, 2017.
The group’s profit after tax dropped to N1.997 billion from N3.591 billion in the same period of last year, indicating a drop of 44.39 per cent.
Profit before tax fell by 7.90 per cent from N2.581 billion in 2016 to N2.377 billion in 2017.
However, the group’s gross earnings rose to N3.876 billion, compared to N3.665 billion last year, a growth of 5.76 per cent.
The management of United Capital while commenting on the HY2017 results, said the company has remained committed to providing finance solutions for domestic and international investors, with a keen understanding that its business model must evolve to complement the clients’ financial objectives.
“While the challenges in the market may have proved disruptive to various aspects of the economy, it has also opened an avenue for the development of innovative Investment Banking products/solutions for United Capital.
The management noted : “As a testament to our commitment to innovate and lead the development of the capital markets, United Capital Asset Management launched the United Capital Wealth for Women Fund and the United Capital Nigerian Eurobond Fund. These unique solutions were a direct response to the changing investment market domestically and internationally. In this same period, the firm’s Investment Banking division also executed a number of successful transactions, including acting as the Joint Issuing House for the FSDH N50 billion Commercial Paper Series 3 and Series 4 and as well as Financial Adviser to United Bank for Africa Plc’s premier Eurobond of US $500 million issued at 7.75 per cent, which was 240 times over-subscribed.”
Group CEO, United Capital Plc, Oluwatoyin Sanni said: “After an impressive 2016, we understood that market expectations would rise considerably but continued to believe that the initiatives being executed across the businesses as well as the existing pipeline of work, would enable us meet those heightened expectations. We remain committed to the pursuit of our clear and consistent strategy across all businesses and will ensure we continue to deliver long term value to shareholders. Whilst the general economic conditions in the main domestic market continue to be challenging, it has also offered an opportunity for innovation. We thank our clients for their continued trust and confidence in us as their investment banking partner and look forward to a stronger second half of the year.”
Sanni noted that United Capital will continue to expand its footprint internationally and across Africa, deploying innovative investment banking solutions to governments, companies and individuals.
She noted that the company will remain committed to providing finance solutions for domestic and international investors with a keen understanding that “our business model must evolve to complement our clients’ financial objectives.
“While the challenges in the market may have proved disruptive to various aspects of the economy, it has also opened an avenue for the development of innovative investment banking products/solutions for United Capital,” she added.
The firm and its peers should strive to cut costs and innovate various revenue generating opportunities to mitigate against the volatile environment under which they operate.