United Capital Plc finished the 2020 financial year’s operations with earnings records that have confirmed our expectations on the company’s performance in 2020. We had posited at the end of the company’s third-quarter operations that “the investment banking firm looks promising to change its earnings story from the lowest revenue figure in four years in 2019 to a new peak in gross earnings in 2020.
“If the high points are maintained in the final quarter, management can hope for the best earnings story in several years at the end of 2020”. The high points were rather exceeded with as much as 55 per cent of full-year profit coming from the final quarter.
The company beat the expectations, breaking free from three years of operating pressure and registering big rebounds in revenue and profit. It closed the 2020 financial year with a new revenue peak of close to N13 billion against a four-year revenue low of N8.6 billion in 2019. The 50 per cent leap in revenue is the biggest event in the company’s earnings story in 2020 – marking the highest revenue growth in many years.
United Capital also surmounted pressure on the bottom line that has been on since 2017 when it suffered a profit drop. It was not able to return to the 2016 profit mark of N6 billion until last year. A 57 per cent growth in after-tax profit in 2020 established a new profit peak of N7.8 billion, the best performance record in years.
Revenue growth was driven by strong increases across the company’s three main earning lines of investment income, fees and commissions and net trading income during the year.
The strong growth in revenue was combined with limited cost increases – which permitted an impressive profit margin. Some cost increases that encroached on earnings at the end of the third quarter fell in line at full year. The company converted more than 60 kobo of the naira of revenue into net profit at the end of the 2020 financial year.
United Capital closed the 2020 full year operations with gross earnings of N12.9 billion, which is a top record growth of 50 per cent. This is a big rebound from a drop of 7 per cent in gross income to N8.6 billion at the end of 2019. As much as N5.8 billion or 45 per cent of the full-year revenue was generated in the fourth quarter.
This represents a big leap from the lowest revenue figure from 2016 to a new earnings peak in 2020. The company hadn’t seen any reasonable improvement in revenue since 2017.
Investment income – the company’s main income line, rebounded from a 3 per cent decline at the end of 2019 to over 42 per cent rise to close at N8.3 billion in 2020. Its investment portfolio expanded by 54 per cent to N145 billion at the end of the year.
Fee and commission income rose by 77 per cent to N3.5 billion in the year while net trading income led to revenue growth for the year with an increase of 454 per cent to N753 million. Other income however dropped by 43 per cent to N398 million at the end of 2020.
Full-year operations ended with an after-tax profit of N7.8 billion for United Capital, which is an increase of 57 per cent. This is an accelerated growth from 14.6 per cent profit improvement in 2019. Up to N4.3 billion or 55 per cent of the profit figure was generated in the final quarter.
A major development in the final quarter is a significant cost moderation that changed the cost-income structure recorded at the end of the third quarter. Total operating cost changed direction from growing well ahead of gross earnings at the end of September. It grew well below gross income at full year at 35 per cent to close at N4.9 billion at the end of the year.
A slowdown in cost increases in the final quarter came from personnel expenses, which shifted position from a 5 per cent increase at the end of the third quarter to a 17 per cent drop to N1.3 billion at full year. The drop in personnel costs moderated major increases in all the other cost elements.
Strong growth in revenue and a big gain in profit margin are the two major operating strengths that United Capital mustered in the 2020 financial year. Net profit margin increased from about 58 per cent in 2019 to 60.6 per cent in 2020 – one of the highest profit margins among Nigeria’s listed companies.
United Capital closed the 2020 financial year with earnings per share of N1.30, improving from 83 kobo per share in 2019. The company’s board has proposed a cash dividend of 70 kobo per share to shareholders for the 2020 operations.
Comments are closed.