Tuesday, January 22, 2019 1:51:58 PM- Nigerian Stock Exchange.

  GTB 2017 FY - efficiency sets bank apart

      Earnings track estimates, PAT up 29% y/y

Marh 15 (Lagos) - GT Bank Plc ( GUARANTY ) released its FY’17 results, beating prior years’ impressive performance to post another record year profit. With most banks taking a cautious loan growth stance in 2017 amidst heightened risk environment, analysts at Vetiva Capital Management Limited in Victoria Island had estimated a 5% moderation in loan portfolio for the period. 

However, notwithstanding a more significant 9% moderation in loan book, Interest Income came in much in line with our estimate as a strong interest rate environment supported top line. We recall that following the currency devaluation in 2016, GUARANTY recorded huge revaluation gains which led to over 100% rise in Non-Interest Income, a trend we had expected to normalize going forward. 

Consequently, Gross Earnings came in flat y/y at N 419 billion as the impact of the strong Interest Income growth was offset by normalizing Non-Interest Income. Despite reporting a flat y/y top line performance, bottom line rose 29% y/y to ?170 billion, ahead of our N 160 billion forecast.

Notably, Interest and Operating Expenses came in at ?81 billion and ?140 billion respectively – both at mild deviations from our estimates. More importantly, loan loss provision remained contained at ?12.2 billion (analyst estimate: N 12.5 billion), deviating from the significant Q4’17 rise that was reported by Tier I peer Zenith Bank Plc ( ZENITHBANK ).

On a q/q basis, earnings remained relatively stable across major line items with PAT up 7% q/q and accounting for 26% of FY’17 performance. Notably, whilst Operating Expense rose 49% q/q - following an unconventional dip in Q3’17, Non-Interest Income was strong within the quarter, up 142% q/q supported by a low base in Q3, higher prices on fixed income securities, improved business environment, and festive boost. 

Overall, with EPS coming in at N 5.79 vs. our N 5.45 forecast, the Board of Directors proposed a final dividend of  2.40 per share (cumulative: N2.70 vs. analyst expectation: N 2.44) translating to a dividend yield of 5%.

Target Price revised to N54.30 (Previous: N53.48)

Excluding the impact of a lower than expected effective tax rate of 15% vs. our 20% forecast, GUARANTY’s earnings were largely in line with estimates. With this, we revise our effective tax estimate lower to 16% for FY’18 as income from tax-free government securities continues to support softer tax rates. 

Furthermore, we forecast an 11% y/y rise in Non-Interest Income for FY’18 as we expect improving business environment to support fees and commission over the period. Also, despite our expectation of moderating interest rate and yield on assets, we forecast a mild 2% y/y growth in Interest Income supported by our 8% loan growth for the year. 

Analysts at Vetiva Capital Management Limited in Victoria Island maintain a cautious stance on NPL formation going forward and forecast a loan loss provision of N 18.1 billion for FY’18. We note that ahead of the implementation of IFRS 9, management disclosed that the adoption would have impacted the bank’s equity by about ?83 billion, shaving  300bps off its CAR (FY’17: 25.50%).

Overall, analyst forecast a PAT of N 177 billion for the year translating to an EPS of N 6.01. GUARANTY trades at a premium to industry peers with P/B and P/E ratios of 1.9x and 7.6x vs. Tier I average of 1.1x and 5.8x respectively.

reporting for easykobo.com on Thursday, Marh 15 2018 from Lagos, Nigeria

Source - analysts at Vetiva Capital Management ltd in Victoria Island, Lagos

Note - All opinions, views, targets and forecast expressed in this article are those of analysts at Vetiva Capital Management Limited in Victoria Island, Lagos. 

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