UBN Property Company Plc


Company Overview
UBNPROP was incorporated on 24th March 2003 and became a public company on 11th February 2015. The company develops, sells and manages office and residential accommodation.

It is a subsidiary of Union Bank of Nigeria Plc which holds 39% shareholding of UBNPROP while UTL Trust Management Servicesꞌ holding is 15.4%.Union Bank of Nigeria Plc is expected to disinvest in UBNPROP when the pending litigation is settled. This is in conformity with directive of the Central Bank of Nigeria for banks to divest from non-banking subsidiaries.

Emeka Emuwa, the chairman, joined the board of directors of the company in 2013. Mr. Emeka is the incumbent chief executive officer of Union Bank of Nigeria Plc. Oluwatosin Osikoya is the managing director of UBNPROP. Mrs Oyinkansade Adewale retired in September 2018 while Mr. Adekunle Sonola joined the board in November 2018.

Investment Thesis
The cyclical nature of the property business makes the acquisition of recurrent income assets imperative. It will help the company to strike a balance between short-term yields and long-term survival.  Revenue growth from sale of properties has not been consistent over the past four years. However, it has been growing income from investment such treasury bills and placements. We expect UBNPROP to intensify efforts at complementing income from sale of trading properties with rental income and property management fees.  Earnings Chart of UBN Property Co. Plc

Though it produced only 5.3% of total income in the current year (2017:6%), rental income should improve going forward as the company completes the investment property under construction worth NGN2.8 billion. These properties are located in prime locations in Abuja and Lagos State. However, we believe that the company can continuously create value by identifying the underserved segments in the market. Property management fees increased marginally from NGN43.3million to NGN44.3 million year-on-year but fell by 9.2% over past three years. Furthermore, its contribution to total income dropped to 2.7% in 2018 from 9.1% in 2015.

Gross profit from sale of properties has continued the improvement which started last year. This is due to decreasing cost of sales of trading properties.

We have estimated the fair value of a share of UBNPROP. We arrived at a value between NGN1.3 and NGN1.8 per share using Discounted Cash Flow Model. Our Two-Stage Dividend Discount Model produced a value ranging from NGN1.1 to NGN1.6 for a share of the company.

Financial Overview
Revenue from the sale of trading properties leapt by 21.2% compared to a 48.4% drop of the prior year. Though investment income shed 2.1% year-on-year, it has grown by 22.1% on a 3-year Compound Annual Growth Rate (CAGR) basis. Rental income declined by 6.6% from NGN92.8 million in 2017 to NGN86.7 million in 2018. Property management fees added 2.4% to close at NGN44.3 million at 2018 year end.

Cost of sales to revenue on trading properties was reduced to 73.8% in 2018 compared to 88.1% of 2017.  Consequently, gross profit margin on sale of properties recorded 14.4% improvement on 11.9% of the year before.Graph of returns of UBN Property Co. Plc

Profit Before Tax (PBT) diminished in the period under review; it moved from NGN1.3 billion to NGN959.6 million. Similarly, Profit After Tax (PAT) lessened by 10.2% to NGN910.4 million at the end of 2018. Earnings Per Share (EPS) was NGN0.16, down from NGN0.18; Book Value Per Share (BVPS) remained flat at NGN1.5. Return on Average Equity (RoAE) and Return on Average Assets (RoAA) were 10.5% and 8.7% respectively. Current assets covered current liabilities and the company can meet its maturing short-term obligations. In addition, the company has no long-term debt and total assets are NGN9.7 billion. Total liabilities accounted for 10.8% and 12.1% of total assets and shareholdersꞌ fund respectively. UBNPROP is not weighed down with indebtedness.

Business Risk
Purchasing power, cost of borrowing, political stability and government regulations are some of the factors that influence the demand for properties. The unpredictability of economic, political, demographic and regulatory factors makes earnings vulnerable.

Recommendation: Hold

Vital Statistics of UBN Property Co. Plc

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