**Rating**:

**Long Term**: Buy+++

**Short Term**: Buy+

**Current Market Price**: N18.90

**NPL RATIO**: 6.20%

**Loan to Deposit Ratio**: *56.67%*

**Year High**: *N34.40*

**Year Low**: *N16.70*

**Fair Value**: *N35.30*

*Equity Analyst*: **Tunde Segun Jeariogbe**

**Key Financial Ratios**

• This report observed the performance indices of Guaranty Trust Bank for the first quarter ended 31st March 2020, compared the same with figures released in the corresponding period of 2019, and established growth and performance ratings.

• We maintained the full-year projections with full-year numbers while performing our valuation analysis, thus our intrinsic value remained high despite the induced price drop in its shares on the Nigerian Stock Exchange (NSE).

• Observe that the Operating Expenses is without Depreciation and Amortisation in our opinion, enabling us to see the true expenses needed for valuation since they are both non-cash expense.

• Generally, the score-card showed a marginal growth when placed side-by-side with that of the corresponding period of 2019. See the table below for detailed information.

**Company Figures**

• We have estimated Guaranty Trust Bank’s Gross Earnings for the first three months of 2020 at N112.86 billion, which is the same as a marginal 6.40% above the 2019 estimate.

• Of this, Interest Income is stated as N77.03 billion, same as 3.43% above the 74.48 billion posted in its 2019 first-quarter numbers.

• Interest Expenses is valued at N12.75billion, versus N16.26 billion in the comparable period of 2019.

• Thus, Net Interest Income is estimated at N64.28 billion, higher than the N58.21 billion in the similar period of 2019.

• Operating Expenses inched by a marginal 5.67% to N32.19 billion, compared to N30.46 billion at the end of 2019 first quarter.

• Profit Before Tax, therefore, stood at N58.20 billion, as against N56.98 billion in the corresponding period of last year.

• Having removed the Tax Expenses due for the period, the management of Guaranty Trust Bank reported N50.06 billion as profit, which is a flat position when compared to N49.30 billion in the similar period in 2019.

• Guaranty Trust Bank’s Total Assets is currently valued at N4.05 trillion, which is 14.10% higher than the N3.55 trillion estimated at the end of 2019 first-quarter business.

• Total Liability (all Deposits inclusive) is estimated at N3.39 trillion, 15.96% above the N2.92 trillion posted in its 2019 first-quarter result

• Net Assets, therefore, improved marginally by 5.40% to stand at N661.06 billion versus N627.17 billion in the corresponding quarter

• Retained Earnings is now N95.04 billion, this is 38.45% drop from 2019 first-quarter numbers

• Total Deposit achieved through the quarter is valued at N2.86 trillion, as against N2.51 trillion posted in 2019

• And, Total Loans and Advances through the three months is put at N1.62 trillion, this is 26.56% above 2019 figure.

• See the above table for details.

**Volatility Ratios**

• Debt Ratio, a ratio that compares Liabilities and Assets, showed that currently, Liability is below Asset Valuation, thus the amount stated as Liabilities is the same as N83.71% of the bank’s Assets. Please understand that the high ratio is typical of a financial institution because they are known to collect deposits and sometimes obtain loans to meeting demands from borrowers as they emerge.

• Confirming the above scenario, we estimate that Total Debt can replicate Equity 5.14 times. That is, the bank used 5.14 times of investors’ equity to finance assets through the period under review, which is higher than the 4.67 times used in the corresponding period of 2019.

• A pointer to investor confidence in the bank is the Equity Ratio that compares Equity to Assets, indicating that Equity is a mere 0.16x or 16% of Total Assets, a reduced position from the 0.18x in the previous first quarter.

• Guaranty Trust Bank’s estimated Beta value confirms its liquid status, at above unity, though it stemmed below the industry average as at the time this report was compiled.

• Although we may not be totally accurate, we have estimated the Non-Performing Loan Ratio of Guaranty Trust Bank at 6.20%, down from 7.48% in the corresponding period of 2019.

• See the table below for details.

**Profitability Ratios**

• Pre-Tax Margin is valued at 51.57%, the same as 4.00% down from the previous estimate of 53.72%.

• Effective Tax Rate is valued at 13.98%, a mild growth above 13.48% in the corresponding period.

• Interest Expense is same as 11.30% of the Gross Earnings for the period, this is a lower performance when compared to 15.33% in the similar period of 2019.

• Return achieved on Average Equity is approximately valued at 7.57%, versus 7.86% in the comparable period.

• See the table below for details.

**Efficiency Ratio**

• Measuring management’s efficiency, we tested and observed that Operating Expenses (without depreciation and amortization) are the same as 28.52% of the Gross Earnings, this is virtually the same as 28.72% achieved in the corresponding period.

• We also established that Gross Earnings is only 2.78% of the Total Assets, a mild drop in management efficiency by 6.75%. In our opinion, the limitation in the effective use of Assets is needed and has to do with the regulatory approach to reduce the financial institution’s risk in its line of business.

• Although the Central Bank of Nigeria mandated a 65% Loan to Deposit Ratio (LDR), the management of Guaranty Trust Bank achieved only 56.67% through the quarter versus 50.99% in 2019

• See below for other observed efficiency ratios.

**Investment Ratios**

• At the end of the quarter, the management of Guaranty Trust Bank earned N1.70 per unit of its listed shares on the floor of the exchange, a mild improvement over the corresponding period earnings.

• Our adjusted P/E-Ratio for the first quarter is put at 2.70x, which is lower than the 5.19x reported in the corresponding period of last year. Note that the reduction was chiefly impacted by the heavy drop suffered due to the negative market-wide reactions to the COVID-19 pandemic on the nation’s economy.

• Meanwhile, confirming the attractiveness of Guaranty Trust Bank at the moment is the fact that the said earnings yielded 9.27% of the current market price, far above the 4.82% recorded in the comparable period of 2019.

• Presently, the estimated Book Value of GTBank is below our intrinsic value at N22.46. Although this is an improvement over N21.31 in 2019 first-quarter analysis.

• Nevertheless, we have established that shares of Guaranty Trust Bank are currently under-valued on the exchange, given our estimated price-to-Book Value ratio that is below unity. This is a further attraction to the shares of Guaranty Trust Bank at the moment

• See the below table for details.

**Valuation**

After carefully exploring our blend of valuation models, we have valued each unit of Guaranty Trust Bank Plc at N35.30. Thus, considering its current market price on the floor as at the time this report was concluded, we Rate Guaranty Trust Bank shares a Strong Buy.