Tuesday, January 23, 2018 7:14:47 AM- Nigerian Stock Exchange.

  GTB - Target Price upgraded by analyst


Oct 20 (Lagos) - GTB ( GUARANTY ) released 9M’16 results, posting strong top line growth with Gross Earnings up 44% y/y and 15% higher than our estimate. Although Interest Income was up by a mild 5% y/y, we highlight that the income line was up significantly by 34% q/q – supported by a jump in loan portfolio on the back of continued currency weakness. 

Also, following the spike in Non-Interest Income in Q2’16 (largely due to FX translation gains), the income line moderated 42% q/q to N46.2 billion (although still ahead of the 2-year quarterly average of N34.3 billion). With loan portfolio up 5% in Q3 standalone and a cumulative 20% ytd, we expect the increased credit

Quarterly run rate moderates howbeit still ahead of estimates following the strong earnings run rate recorded in Q2 (supported by extraordinary items), we had anticipated a significant moderation in Q3’16 performance to reflect new market realities. Whilst this trend was observed
across key line items in Q3 as Gross Earnings, PBT, and PAT declined 11%, 19% and 18% respectively, the income lines still came in impressive with PBT and PAT trumping our estimates despite pressure from operating expense and loan loss provision. Overall, bottom line rose 60% y/y to an industry high of N120 billion - ahead of our N92 billion estimates.

GTB continues to report record high loan loss provision as the impact of weak oil prices and currency devaluation takes its toll on the bank’s credit portfolio. Whilst we had expected the bank’s high exposure to the embattled oil & gas sector and its high FX exposure to bear on loan loss provisioning, we are a little surprised by the magnitude of the expense line (N57.1 billion
vs. our N47.8 billion forecast).

Although we note the moderation in loan loss expense in Q3 (N19.5 billion vs. Q2’15: N34.2 billion), we expect the line item to remain elevated in the near term. Overall, we revise our loan loss expense estimate to N70.2 billion – translating to a CoR of 4.7% (Previous: 3.9%).
TP revised to N32.76 (Previous: N31.50)

Analysts at Vetiva Capital Management Ltd in Victoria Island have updated our model and revised our forecast accordingly to reflect the earnings surprise. Amidst the sector wide call for capital buffers, GUARANTY remains adequately capitalized and liquid with Capital Adequacy Ratio (CAR) and Liquidity Ratio (L.R) of 18.1% and 37.6% respectively. 

Whilst the uptick in impairment remains worrisome (NPL ratio: 4.13%), we expect the strong
earnings growth and efficiency to continue to cushion the impact on bottom line. We maintain our Interest Expense forecast at N68.5 billion and raise our Operating Expense estimate to N109.4 billion (previous: N100.7 billion) in line with recent trend. With the currency still under pressure, we except Non Interest Income to remain strong, albeit at a moderate slower pace.

That said, analyts at Vetiva Capital Management Ltd also anticipate a sizeable cut back in E-business income as banks’ suspend the use of Naira cards for foreign currency transactions (E-business income accounts for 46% of fee and commission income ytd). Overall, we raise our TP
to N32.76 (Previous: N31.50) translating to 2016 P/BV and P/E ratio of 5.0x and 1.4x respectively.

reporting for easykobo.com on Thursday, Oct 20 2016 from Lagos, Nigeria

Source - analysts at Vetiva Capital Management Ltd in Victoria Island 

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