Guaranty Trust Bank made available its scorecard for the period ended September 30, 2016, to the investing community after close of trading last Wednesday, earlier than the release date of the 2015 report.

The numbers released were impressive and strong to beat market and analysts’ expectations. This was as a result of the bank’s professionalism and quality of asset management that has continually repositioned its brand before the banking public as the  ICT-driven banking products and efficient customer service delivery has supported its steady growth in terms of profitability and returns to stakeholders.

Its strategic decision to actively pursue retail banking with great innovation, including introduction of convenience products that have boosted customers and deposit base with high patronage. The bank has remained tall through all regulations and headwinds that put the sector at its current position in Nigeria.

In the current financial year despite the economic recession the ban’s quarterly results have been looking up with the support of forex revaluation gains.

The performance ratios revealed improvement on those of the corresponding quarter of last year, as top and bottom lines were up for the period under consideration.

Specifically, gross earnings rose by 44% from N229.37 billion in 2015 to N329.28 billion, just as profitability level rose at a faster pace. Profit before tax was up 60% to N120 billion from N75.16 billion in 2015. The numbers were also boosted by Fx revaluation gain of N93.95 billion, a significant increase when compared to the N6.96 billion recorded in 2015. There was a marginal decrease in cost of operation for the period following which  profit margin for the period rose from 32.8% to 36.4%.

This was also despite the huge increase in loan loss provision in the period as the bank complied fully with the directive of the Central Bank of Nigeria (CBN) in a bid to keep the loan books and balance sheet of Nigerian banks healthy and clean, thereby avoiding the usual full-year shock and surprise to shareholders.

The resulted in GTBank making a huge provision of N57.08 billion, as against N8.52 in 2015, representing 569.95 percent. The bank operation expenses margin for the quarter dropped to 20.94%, up from 28.20% recorded in 2015.

Net assets moved up to N492.20 billion from N400.67 billion in the corresponding period of 2015. Its earnings per share (EPS) for the period went up to N4.07 from N2.55 in 2015 representing 59.56% growth.

The bank’s improved earnings power for the period under review resulted in the price in 1.91x, which is lower than the 2.08x recorded in 2015.  The book value for the period stood at N16.72, up from 13.61 in 2015. The improvement in profit margin compared to corresponding period is evidence of cost management, despite the high provision that calls for more management effort in the area of credit risk, just as loan to deposit ratio of 80.27% is high on return to assets of 3.88%.

  SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Investors, on the other hand, were driven by value as the bank’s strong numbers supported its share price and consistent dividend have attracted all class of investors to the stock as they take strategic positions to partake in the full year dividend at the end of the current financial year.
Similarly, the book value has grown significantly in the last four years from N9.58 to N16.72.  The investing community’s confidence and earnings power supported its price as valuation tools placed the bank’s stock at N35

Technical View

GTB’s management has demonstrated professionalism in managing a world-class bank in every facet to ensure steady growth in terms of profitability and dividend payment.
The bank’s outstanding position in the pre-recession and in the ongoing recession season have reflected in the recent results that was boosted by  its customer and deposit base with high patronage by the banking public has sustained it operation.

The bank remains strong in the industry as a result of solidified operations and branch networking through information technology-driven products and efficient customer service delivery.

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Performance

The bank’s giant strides were clearly revealed in the numbers posted in the past four years which shows that it has consistently enhanced its performance over the period as reflected in its profitability ratio within the review period. Gross income during the period grew by 35.32% from N223.06 billion in 2012 to N301.85 billion, while profit after tax (PAT) rose by 14.71% to N99.44billion from N86.69 billion posted in 2012.
The profitability level has steadily grown to support share price, placing the bank among the top three in terms of profitability, asset, margin, service delivery and risk management in the industry today.  Under the period of four years, the risk and cost management of the bank improved tremendously as shown in its profit margin considering the changing business environment as it slipped to  32.94% from  38,86% in 2012.
The bank’s prudent management in this harsh business climate led to enhanced shareholder value or net assets for this period. The nature and complexity of the risks in its business requires strong and robust risk management structures to provide adequate oversight at all levels.
The earnings power of the bank remained strong at N3.38, regardless of challenges confronting the industry such as the seeming over regulation, high Monetary Policy Rate, tight liquidity, falling crude oil price, dwindling external reserve and falling naira value at the exchange market.
The bank’s 2015 full year EPS of N3.38 was beyond analysts and market expectations at a time non-performing loan resulting from the falling oil price was expected to impact negatively on banks’ profitability at a time some operators in the industry had started posting negative or declining profit.

The bank’s total assets per share and book value per share stood at N85.78 and N14.05 respectively.

SOURCES: COMPANY DATA & INVESTDATA RESEARCH

Valuation  

Our FY 2016 gross earnings forecast for GTBank is adjusted up on the strength of its Q3 to  N345.21 billion, representing a 22.79% improvement, relative to FY 2015, while our net income estimate for FY 2016 is N106.21 billion and translates to a 21.52% improvement from FY 2015. This yields an EPS of N4.41 and a forward P/E ratio of 2.68X. The banking sector still remains in the eye of the storm even in 2016. We expect more loan loss provisions as oil price remains under pressure in addition to the power sector’s doubtful loans .

The pass through effects of the implantation of the Treasury Single Account (TSA) is still evident in the rising cost of borrowing and the pressure on net interest margins. Our net book value estimate for FY 2016 is N500.20 billion, which brings forward price to book value to 0.98X. We also expect marginally  growths in both deposit from customers and Loan Book for FY-2016, which means that the lender’s success in 2016 will be determined by the efficiency of balance sheet deployment and the potency of its risk assessment framework.

Analysts Opinion/Recommendations

The shares of GTBank is overvalued considering its book value that narrowed the margin of safety, but its consistent dividend payout has supported its share price which is likely to remain for  the FY 2016 estimates. The stock is currently trading at a 45.05% discount to our fair value estimate of N35. We are mildly optimistic that despite the tight operating environment in Nigeria with the implementation of the TSA policy by the Federal Government which tightened the liquidity condition in the Nigerian financial system, the steep tank in oil prices which posed a major threat to asset quality for most Nigerian banks as a result of their exposures to the sector and the tight currency control policies of the CBN which has weakened the earnings capacity of banks in the country, GTB has the capacity to weather the storm as it has demonstrated before now, especially with some of its investment in hard currency through its Eurobond and others. This has reflected on its fx revaluation gain.

Although we expect major headwinds, at least all through the rest of the year, we are also impressed with the continued growth of the bank’s Book Value position over the last few years. However the bank must be proactive with its Return on Equity (ROE) growth. We recommend BUY for now.