Company: GUARANTY TRUST BANK PLC
Rating: Buy
Current Market Price: N26.00
NPL RATIO: 7.03%
Year High: N39.15
Year Low: N25.70
Fair Value: N36.02
Equity Analyst: Tunde Segun Jeariogbe

Introduction
• This report observes the half-year financial statistics of Guaranty Trust Bank Plc for the period ended June 30, 2019; compared the same with the similar period of 2018 to establish growth and rate performance accordingly.
• As generally expected, the management of Guaranty Trust Bank announced an interim cash dividend of 30k/share. Please note that the same amount was paid as interim at the end of the 2018 half-year business activities.
• According to the financials released through the exchange, qualification date for the said dividend is September 2, 2019, while the payment is slated for Wednesday, September 11, 2019.
• As at the end of the first quarter of 2019, the Non-Performing Loan Ratio of Guaranty Trust Bank stood at 7.03%, increasing from the 6.10% in the third quarter of 2018, but representing a downward adjustment from the 7.30% recorded at the end of 2018 financial year. It is however still above the set 5% regulatory threshold.
• We stepped down our previous valuation of Guaranty Trust Bank by 11.06%. This is due to the reduced growth rate observed in its financial metrics. See the table below for our fair value regarding each unit of Guaranty Trust Bank listed.
• Scanning through the half-year metrics, we noticed an almost flat position when placed side by side similar periods in 2018.
• See below for further analysis:

Company figures
• Gross Earnings estimated for the period stood at N212.38 billion, a marginal reduction of 0.75% from the N213.98 billion estimated from the 2018 half-year performance indices.
• Interest Income reported was same as N148.99 billion, as against the N161.88 billion posted in the comparable period of 2018.
• Interest Expenses, on the other hand, dropped by 25.76% to N32.62 billion, compared to the N43.95 billion posted in 2018 the half-year financials. Please observe the impact of the reduced Interest Expenses on the bank’s Net Interest income for the current period.
• Net Interest Income was therefore estimated for N116.36 billion, the same as 1.33% marginal drop over the N117.92 billion in 2018.
• Operating Expenses, on the other hand, adjusted marginally down by 4.16% to N58.01 billion from the previously estimated N60.53 billion.
• Supported by improved Net Fee and Commission Income and other Income, Profit before Tax climbed to N115.78 billion, same as 5.61% above the N109.63 billion achieved in the similar period of 2018.
• Thus, having considered the tax expense for the period, a total of N99.13 billion was finally reported as profit for the period, which is an improvement over the N95.58 billion earned at the end of 2018 half-year.
• Meanwhile, Total Comprehensive Income for the period was estimated at N100.17 billion up from the N94.37 billion achieved in 2018 half year.

• Total Assets of Guaranty Trust Bank Plc is currently valued at N3.59 trillion, a marginal improvement over the previous estimate of N3.54 trillion.
• Total Liabilities, on the other hand, dipped by a marginal 1.86% to N2.99 trillion, compared to the N3.05 trillion estimated in 2018.
• Thus, Net Assets grew by 21.31% at the current value of N603.01 billion as against N497.08 billion.
• Retained Earnings soared by 176.52% to the current N128.21 billion as against N46.36 billion last year.
• Total Deposit also grew mildly over the comparable period to N2.55 trillion from N2.37 trillion of 2018.
• Total Loans and Advances slipped 1.45% down to N1.27 trillion, compared to the previous N1.29 trillion.

Financial Strength/Solvency Ratios
• We have estimated the Debt Ratio at 0.83x, as against 0.86x last year, implying an improved asset valuation as against last year. Please note that Total Deposits was added to the Liabilities figure used in the estimate.
• We also ascertained that the Total Debt for the period can replicate Equity 4.91 times, a reduced position from the 6.14 times replicated estimated from the 2018 half-year statistics.
• Total Equity was estimated at 17% of the Asset Value at the end of the period, this is an improvement of 19.65% over the 14% estimated in the corresponding period.
• We have estimated a Beta value above the market Beta for Guaranty Trust Bank Plc shares. Please note that at 1.06 beta value, it is still below the 1.34 industry average.

Profitability Ratios
• We have estimated the Debt Ratio at 0.83x, as against 0.86x last year, implying an improved asset valuation as against last year. Please note that Total Deposits was added to the Liabilities figure used in the estimate.
• We also ascertained that the Total Debt for the period can replicate Equity 4.91 times, a reduced position from the 6.14 times replicated estimated from the 2018 half-year statistics.
• Total Equity was estimated at 17% of the Asset Value at the end of the period, this is an improvement of 19.65% over the 14% estimated in the corresponding period.
• We have estimated a Beta value above the market Beta for Guaranty Trust Bank Plc shares. Please note that at 1.06 beta value, it is still below the 1.34 industry average.

Efficiency Ratios
• Operating Expenses is estimated to be 27.32% of the Gross Earnings Value estimated for the period, this is a marginal drop from the 28.29% estimated from 2018 financial statistics
• Similarly, Gross Earnings was estimated to be 5.90% of Total Assets, this is a 2.11% marginal drop in efficiency when compared to estimate from the corresponding period
• Total Loan to Deposit Ratio achieved at the end of the quarter stood at 49.94% down from the 54.53% achieved in 2018 half year. Please note that this is below the CBN mandated 60% which was expected to be achieved for the third quarter of 2019.

Investment/Valuation Ratios
• Profit on each unit of Guaranty Trust Bank at the end of the half-year is estimated at N3.37, as against the previously estimated N3.25.
• Total Comprehensive Income per share is estimated at N3.40, versus N3.21 in the corresponding period of 2018.
• Price to Earnings Ratio adjusted for the half-year stood at 1.93x, as against the 3.00x of 2018.
• The said Earnings Per Share is same as 12.96% of the current market price of Guaranty Trust Bank Plc shares on the floor of the Nigerian Stock Exchange (NSE) at the time the result was released, which is a better Yield when compared to the previous half-year estimate.
• The current Book Value of Guaranty Trust Bank is N20.49, a 21.31% improvement from the N16.89 estimated in the corresponding period of last year.
• Confirming a seemingly over-priced position is the Price to Book Value ratio that stood clearly above unity.

Valuation
As noted in our introductory paragraph above, we adjusted down the fair value for each share of Guaranty Trust Bank Plc by 11.06% to N36.02 from the previous N40.50. Considering the distance between the current market price of the equity on the floor of the exchange and our achieved fair value, we rated it a Buy.