Company Analysis

# GTBank: Time For New Thinking, Amidst Slipping Ratios, Stiffer Competition

**Rating: Hold**

**Current Market Price: N31.00**

**Loan to Deposit Ratio: 44.08%**

**Year High: N36.00**

**Year Low: N 27.85**

**Fair Value: N38.16**

**Equity Analyst: Tunde Segun Jeariogbe**

**Key Financial Ratios**

- This report observed the full-year financials of Guaranty Trust Bank for the period ended 31
^{st}March 2021, compared same with figures for the corresponding period of 2020, to establish growth and performance ratings. - We maintained the full-year projections while performing our valuation analysis.
- Note that Operating Expenses is without Depreciation and Amortisation, which in our opinion, enables us to see the true expenses needed for valuation since they are both noncash expenses.
- Generally, the result showed a marginal growth when placed side-by-side that of the corresponding quarter of 2020. See below for detailed information.

**Company Figures**

- We have estimated Guaranty Trust Bank’s Gross Earnings for the first three months of 2021 at N106.16 billion, the same as 4.24% below that of 2020.
- Of this, Interest Income was N60.30 billion, same as 21.71% below the 77.03 billion posted in its 2020 first quarter numbers.
- Interest Expenses dropped to N7.87 billion, versus N12.75 billion in the comparable period of 2020.
- Thus, Net Interest Income is estimated at N52.43 billion, lower than the N64.28 billion in the similar period of 2020.
- Operating Expenses slipped by a marginal 0.68% to N31.97 billion, compared to N32.19 billion at the end of 2020 first quarter.
- Profit before Tax, therefore, stood at N53.68 billion, as against N58.20 billion in the corresponding period.
- Having removed the Tax Expenses due for the period, the bank’s management reported N45.54 billion profits, which is 9.03% below the N50.06 billion reported for a similar period in 2020.

- Total Assets is currently valued at N4.99 trillion, 23.05% better than the N4.05 trillion estimated at the end of 2020 first quarter business.
- Total Liability (all Deposits inclusive) is estimated at N4.15 trillion, 22.35% above the N3.39 trillion posted in its 2020 first quarter result
- Net Assets therefore improved by 26.65% at N837.23 billion, versus N661.06 billion in the corresponding quarter of last year.
- Retained Earnings is now N216.12 billion, which is a 127.39% growth over the 2020 first quarter numbers.
- Total Deposit achieved through the quarter is valued at N3.71 trillion, as against N2.86 trillion posted in 2020.
- And, Total Loans and Advances through the three months is N1.63 trillion, a mere 1.03% above the 2020 loans and advances.
- See above table for details.

**Volatility Ratios**

- Debt Ratio, a ratio that compares Liabilities and Assets, showed that currently Liability is below Asset Value. Therefore, Liabilities is same as N83.23% of the bank’s Assets. Note that high ratios are typical of financial institutions, because by the nature of their business, they collect customer deposits, and sometimes take loans to meeting borrowers’ demands.
- Confirming the above scenario, we estimated that the Total Debt can replicate Equity 4.96 times, meaning that the bank used 4.96 times of investors’ equity to finance assets through the period under review, lower than 5.14 times used in the corresponding quarter of 2020.
- Establishing investor confidence in the bank is the Equity Ratio that compares Equity to Assets. We estimate that equity is only 0.16x or 16.77% of Total Assets, an improved position from the 16.29% in the prior Q1.
- Guaranty Trust Bank’s estimated beta value confirmed a more liquid status, since it is well above unity.
- See the table below for details:

**Profitability Ratios**

- Pre-Tax Margin is valued at 50.57%, same as 3.68% down from the previous 52.50%.
- Effective Tax Rate is valued at 15.16%, a mild improvement over the 13.98% of last year.
- Interest Expense is same as 7.42% of the Gross Earnings for the period, a lower performance when compared to the 11.50% in the similar period of 2020.
- Return achieved on Average Equity is approximately valued at 5.44%, versus 7.57% in the comparable period.
- See the table below for details:

**Efficiency Ratio**

- Measuring management’s efficiency within the period, we tested and observed that Operating Expenses (without depreciation and amortisation) is same as 30.11% of the Gross Earnings. This is mildly above the 29.04% achieved in the 2020Q1.
- We also established that Gross Earnings is only 2.13% of the Total Assets, a 22.18% drop in management efficiency within the compared period.
- Loan to Debt Ratio dropped by 22.2% farther from the 65% regulatory threshold set by the Central Bank of Nigeria, to 44.08%, from 56.67% in the corresponding period of last year.
- See below for other observed efficiency ratios:

**Investment Ratios**

- At the end of the quarter, the bank earned N1.55 per unit of its listed shares on the exchange, a 9.03% drop from that of last year.
- Our adjusted P/E-Ratio for the first quarter is 5.05x, much higher than the 2.70x in the corresponding period of the prior year.
- It is important to note that the large difference was due to the induced drop in its share price in the 2020Q1, resulted from the lockdown imposed across the country, like in most economies across the globe to check the novel Coronavirus pandemic.
- Meanwhile, the improved share price and reduced earnings resulted in a lower yield of 4.95%, as against 9.27% in the corresponding period of last year.
- Presently, the estimated Book Value of Guaranty Trust bank stemmed below our intrinsic value at N28.45, which is, however, an improvement over the N22.46 of the 2020Q1.
- Thus, confirming an academic over-priced status of the shares, is the Price to Book Value of Guaranty Trust Bank at above unity.
- See the table below for details:

**Valuation**

After carefully exploring our blend of models, we have valued each unit of Guaranty Trust Bank Plc at **N38.16**, following which, considering its market price on the exchange at the time of this report, we Rate Guaranty Trust Bank shares a **Hold.**