Weak Gross Income Symptomatic Of Low Yield Environment

By Imperial Asset Research,
A close analysis of the results showed that Gross Income (GI)plunged marginally by 2.1% to ₦221.87 billion, while Net Income (PAT)grew by 3.72%to₦99.13billion compared to6M-18figures. We observed that the low GI y/y was due to 7.96% contraction on Interest Income amid low returns on loans and advances to customers and fixed income investment. This 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 interest rate y/y strengthens margins

Although, customers’ deposit grew marginally by 6.3%, due to lower interest rate environment, interest expenses on deposit contracted by 21.5% y/y.This and absence of debt securities’ obligation (reason not explicitly stated)helped to contract interest expenses by 25.8%. At this rate cost-to-income dropped to 14.7% vs 19.4% in 6M-18. Impairment charges for the period rose by 7.6% to₦2.2billion while total OPEX was relatively unchanged at ₦69.87 billion compared to 6M-18. With the reduction in obligations, the leverage ratio dropped to 0.83x vs 0.86x in 6M-18.

Bottom lines reflect improved margins
In line with the curtailed cost lines, pre-tax profit returned growth of 1.4% to settle at₦115.8 billion. Total tax expenses accumulated to ₦16.65 billion (corporate + education + NITDA levy), representing 18.5% upside of 6M-18 figure.Net income (PAT) returned a modest growth of 3.7% at ₦99.13 billion from ₦95.58 billion in 6M-18. Based on outstanding shares of29.4 billion, our computed 6M-19 earnings per share (EPS) stands at337kobo,13kobo lower than GT Bank’s reported 350kobo leading to a Price/Earnings Ratio (PER) of 7.72x at the market price of ₦26.00 posted on Friday, 16th August 2019.

Dividend yield to brighten shareholders’ lot
GT Bank’s Board of Directors has indicated it will reward shareholders with an interim dividend of 30kobo per share for the half-year ended 30th June 2019. At the closing market price of ₦26.00 on Friday, 16th August 2019, a dividend yield of 1.35% will be accrued to its shareholders.

We retain a BUY recommendation on GTBank
On a balance of factors, we have reversed our estimates onGT Bankto₦32.50 from ₦35.50. Notably, the stock price of GT Bank has shed 33.7% (currently at N26.0) since the date Q1-19 figures were released (14th April 2019). Our valuation was based on mixed of DDM and RVMwith a biased weight placed on PE ratio and P/BV at 7.72x and0.63x respectively. Our target price of ₦32.50 presents 25.0% upside opportunity ahead of FY-19. Although the interim dividend yield of 1.35% is marginal at current market price, we anticipate a healthier dividend at FY-19. GT Bank is currently trading at a forward PE ratio of 3.82x, a discount to the industry average of 10.35x.
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.