GTBank 2019Q3: Weak Gross Income, Lower Yield Environment

By Imperial Asset Management Research
9M-2019 Performance Review
Guaranty TrustBank(GT Bank) Plc on Wednesday,16 October 2019 released its un-audited nine months financial statements for the period-ended 30th September (9M-19) 2019.
Weak gross income symptomatic of lower yield environment
A close analysis of the results showed that Gross Income (GI)plunged by 3.3% to ₦326.44 billion, while Net Income (PAT)grew by 3.35%to₦146.99billion compared to9M-18figures. The low GI y/y was due to 36.5% contraction on Interest Income amid low returns on loans & advances to customers (-6.2%) and fixed income investment (-8.7%). It was symptomatic of the lower yield environment in the treasury and bond investment and the reduction of the MPR to 13.50% which dropped interest on loans and advances.

Lower cost items strengthen margins y/y
Although, customers’ deposit grew by 8.3% as the bank increased fund mobilization drive, interest expenses on deposit contracted by 19.9% due to lower money market’s rates y/y (5.75% vs 10.65).This and absence of debt securities’ obligation (reason not explicitly stated)helped to contract interest expenses by 23.4% y/y. At this rate, cost-to-income dropped to 36.8% vs 38.3% in 9M-18. Impairment charges for the period spiked upward by 58.9% to₦2.76billion while OPEX plunged by 2.2% to₦99.6 billion compared to 9M-18. With the reduction in obligations, the leverage ratio dropped to 0.81x vs 0.84x in 9M-18.

Bottom lines reflect improved margins
In line with reduced obligations, pre-tax profit returned growth of 3.9% to settle at₦170.65 billion. Total tax expenses rose to ₦23.66 billion (corporate + education + NITDA levy), representing a 7.45% upside of 9M-18 figure.Net income (PAT) returned a modest growth of 3.4% at ₦146.99 billion from ₦142.22 billion in 9M-18. Based on outstanding shares of29.4 billion, our computed 9M-19 earnings per share (EPS) stands at499kobo,20kobo lower than GT Bank’s reported 519kobo leading to a Price/Earnings Ratio (PE) of 5.34x at the market price of ₦26.65posted on Thursday, 17 October 2019.

We retain a BUY recommendation on GT Bank
On a balance of factors, we have revised upward our estimates onGT Bankfrom₦32.50to₦35.00. Notably, the stock price of GT Bank has gained a marginal 2.5% (currently at N26.65) since our last review of Q2-19 figures on 16 August 2019. Our valuation was based on mixed of DDM and RVMwith a biased weight placed on PE ratio and P/BV at 5.34x and1.27x respectively. Our target price of ₦35.00 presents a 31.3% upside opportunity ahead of FY-19 released period (March-April 2020). GT Bank is currently trading at a forward PE ratio of 1.82x, a discount to the industry average of 6.23x.

Therefore, we maintain a BUY recommendation on GT Bank.

GT Bank was incorporated and licensed to provide commercial and other banking services to the Nigerian public in 1990. It commenced operations in February 1991 and has become one of the most service-focused banks in Nigeria and Africa. The Bank’s principal activity remains the provision of commercial banking services to its customers, such as retail banking, granting of loans and advances, corporate finance, money market activities, and related services, as well as foreign exchange operations.