Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

United Bank Ltd/Pakistan / Equity Bottom-Up

Pakistan continues to offer value opportunities. One of our favoured stocks globally Meezan has performed especially well over the last 12 months but may merit a pause as our attention again turns to UBL though we recognise the merits of Habib Metropolitan and National Bank of Pakistan.UBL ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. On a LTM basis, the bank's PH Score™ of 8.9 reflects progression in Profitability, in Efficiency, in Asset Quality, in Liquidity and in Provisioning as well as an attractive valuation variable though some (but not all) Capitalisation ratios and NIM/Spread eroded.<div class="content-highlight">A FV of 8% and a PBV of 0.77x are not unattractive below natural thresholds of 10% and 1x. The bank has an Earnings Yield of 16.2%, a Dividend Yield of 14.2%, and a Total Return Ratio of 3.1x.  </div>UBL’s network stands at 1,386 branches. This includes &gt;100 Islamic branches with around 200 Islamic banking windows. Omni, a flagship branchless banking proposition, supports the mass unbanked population. UBL prides itself in its technological innovations, including a “UBL Digital App”, one of the fastest growing Banking apps in the market with a digital subscriber base of &gt; 1.5 million.UBL dedicates itself to corporate lending (85% of credit) and to some limited consumer activity such as secured auto. The Corporate segment includes quite an elevated exposure to segments such as manufacturing, government, and utilities. Loans are concentrated in maturities &lt;1year and to a lesser extent &lt;5years.  By Operating Income, the bank is balanced between Branch Banking and a combination of Corporate/Commercial, Treasury, International, and Islamic Banking. CASA Deposits represent 75.0% of Deposits while Time Deposits contribute 23.0%. Deposit maturities are diversified. Higher remittances of late support further deposit inflows and foreign-currency liquidity. Remittances have the potential to increase over the next few years, backed by the Pakistan Remittances Initiative and technical advances that materially reduce transaction costs. UBL commands a 23% share in remittances.Caveats. Assessment must take into consideration the bank's high exposure to the sovereign through holdings of government securities, which links the bank's creditworthiness to that of the government, and to lending to the State. We highlight pressures on system asset quality and profitability metrics, as a result of the C-19 induced economic slowdown and ongoing challenges at the bank's GCC operations, while acknowledging the bank's stable deposit-based funding profile and high liquidity buffers. LCR and NSFR are elevated.

Pakistan continues to offer value opportunities. One of our favoured stocks globally Meezan has performed especially well over the last 12 months but may merit a pause as our attention again turns to UBL though we recognise the merits of Habib Metropolitan and National Bank of Pakistan.UBL ranks in the top quartile globally of our VFM (Valuation, Fundamentals, Momentum) universe. On a LTM basis, the bank's PH Score™ of 8.9 reflects progression in Profitability, in Efficiency, in Asset Quality, in Liquidity and in Provisioning as well as an attractive valuation variable though some (but not all) Capitalisation ratios and NIM/Spread eroded.A FV of 8% and a PBV of 0.77x are not unattractive below natural thresholds of 10% and 1x. The bank has an Earnings Yield of 16.2%, a Dividend Yield of 14.2%, and a Total Return Ratio of 3.1x.  UBL’s network stands at 1,386 branches. This includes &gt;100 Islamic branches with around 200 Islamic banking windows. Omni, a flagship branchless banking proposition, supports the mass unbanked population. UBL prides itself in its technological innovations, including a “UBL Digital App”, one of the fastest growing Banking apps in the market with a digital subscriber base of &gt; 1.5 million.UBL dedicates itself to corporate lending (85% of credit) and to some limited consumer activity such as secured auto. The Corporate segment includes quite an elevated exposure to segments such as manufacturing, government, and utilities. Loans are concentrated in maturities &lt;1year and to a lesser extent &lt;5years.  By Operating Income, the bank is balanced between Branch Banking and a combination of Corporate/Commercial, Treasury, International, and Islamic Banking. CASA Deposits represent 75.0% of Deposits while Time Deposits contribute 23.0%. Deposit maturities are diversified. Higher remittances of late support further deposit inflows and foreign-currency liquidity. Remittances have the potential to increase over the next few years, backed by the Pakistan Remittances Initiative and technical advances that materially reduce transaction costs. UBL commands a 23% share in remittances.Caveats. Assessment must take into consideration the bank's high exposure to the sovereign through holdings of government securities, which links the bank's creditworthiness to that of the government, and to lending to the State. We highlight pressures on system asset quality and profitability metrics, as a result of the C-19 induced economic slowdown and ongoing challenges at the bank's GCC operations, while acknowledging the bank's stable deposit-based funding profile and high liquidity buffers. LCR and NSFR are elevated.

UBL: Great Dividend Yield Given Funding and Liquidity Strengths