Should you buy UBL before it hits Rs560?

Key takeaways:

• UBL’s EPS revised up to Rs96 for 2025, up 55% from previous estimate
• 1Q2025 results beat expectations on stronger Net Interest Income (NII)
• Current account deposits up 50% YoY, with mix improving to 54%
• Target price raised to Rs560, implying a 19% total return, including 10% dividend yield
• BUY rating reaffirmed

United Bank Limited (UBL) is showing strong signs of outperformance in the banking sector, prompting a major upward revision in earnings forecasts. Following a robust 1Q2025 showing, research analysts have increased their EPS estimate for 2025 by 55% to Rs96, with the 2026 EPS now expected at Rs85.4.

The bullish outlook is supported by exceptional deposit growth, attractive valuations, and a stronger capital base, making UBL a top contender among listed Pakistani banks.

Deposit growth outpaces peers

In 1Q2025, UBL recorded total deposit growth of 23% YoY and 29% QoQ, significantly higher than the average 15% YoY growth reported by peers such as HBL, MCB, and MEBL. More impressively, current account deposits rose by 50% YoY, pushing the current account mix to 54%, up from 44% last year.

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This surge in low-cost deposit growth improved NII, contributing to the earnings beat. The deposit momentum is attributed to a low-base effect in 4Q2024—when the bank deliberately reduced deposits to manage tax exposure—and a more efficient strategy under new management.

Deposit assumptions have now been revised to 30% growth for 2025 and 15% for 2026, with a sustained current account mix of 55%.

Strong capital gains and repo positioning

UBL’s 1Q2025 results also featured a Rs5.8 billion capital gain from federal government securities. The bank holds Rs30 billion in unrealized gains post-tax on its investment book, which is heavily skewed toward floating-rate PIBs. With falling bond yields, more gains are likely.

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Capital gains assumptions now stand at Rs16 billion for 2025 and Rs15 billion for 2026.

Meanwhile, repo borrowings stood at Rs5.1 trillion in March 2025. While UBL’s leverage ratio of 3.06% is below the peer average of 5.12%, it now meets the SBP’s minimum threshold. Government reliance on OMOs is expected to persist, keeping UBL’s spread-based income from OMOs intact.

Amalgamation boost from SILK

UBL has successfully amalgamated Silkbank (SILK). This move helped reduce deferred tax liabilities from Rs39 billion to Rs12 billion, though it won’t significantly impact tax expenses in 2025 due to super tax laws. Effective tax rates of 53% in 2025 and 52% in 2026 are assumed.

Capital strength & dividends

UBL’s Capital Adequacy Ratio (CAR) improved to 21.4%, well above the regulatory minimum of 12.5%. With profitability climbing, the expected dividend per share has been revised up to Rs52 for both 2025 and 2026, translating to an attractive dividend yield of 10%.

Key financial projections

Valuation & outlook

UBL is currently trading at a 2025E P/E of 5.4x and PBV of 1.7x, with a 35% ROE—placing it among the most attractive names in the sector. The Dec-2025 target price has been raised to Rs560/share, offering a 19% total return including dividends.

Risks to watch

• Faster-than-expected drop in interest rates
• Negative spreads on repo operations
• Slower-than-forecast current account deposit growth

UBL’s performance in 1Q2025 signals a shift in momentum, driven by improved deposit mix, capital gains, and management efficiency. With increased earnings visibility and stronger capital buffers, UBL looks primed for further upside. For investors seeking high-yield exposure to a bank with robust fundamentals, UBL remains a compelling “BUY.”

Source: Topline Research

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →