Union bank: The renewal of the old horse

The MD of Union Bank Plc, Funke Osibodu, informed journalists yesterday that Union Global Partners Limited (UGPL), partly owned by Standard Chartered Bank, now have 65% stake in Union Bank. Amcon continues to hold 20% while Nigerians hold the remaining 15% stake in the bank.

The rights issues that was proposed earlier in the year was an opportunity to increase the ownership stake of other shareholders of the bank from 15% to 21% but due to investor apathy and poor information flow from the managers, it failed.

The exiting managing director who is expected to handover Emeka Emuwa, the current managing director of Citibank Nigeria, informed Nigerians yesterday that UGPL has injected $500 million (c. N79 billion) as Tier 2 capital into the bank in exchange for 65% ownership stake. 

In its half year unaudited statement for the period ended June 2012, Union bank declared revenues of N58.0 billion and profits after tax of N16.1 billion, which is equivalent to net profit margin of  27.8% and above the industry average of 18.6%.

The return on equity of 15.9% is, however, slightly less than the industry average of 17.6%. This is not surprising given the fact that it has the lowest loan to deposit ratio of 29.4% when compared with the industry average of 62.8%, meaning that most of its interest income was largely derived from placements with other banks at the interbank window and low yielding FGN securities. If the bank is able to grow its loan books aggressively, its return on equity is likely to surpass or be in line with the industry average. With Standard Chartered leverage, this is more likely to happen than not.

With 16.9 billion shares outstanding, Union bank has a price to earnings ratio of 3.94x, price to book value of 0.84 and return on equity of 15.9%, the fair price of the stock is placed at N9.17 and at current price of N7.51 it has a hold rating.