Snapshot

? Earnings track estimate, PAT up 13% y/y 

? PAT set for a new record high despite relatively slower quarter 

? Credit growth to stay tepid – revised lower to -9% (Previous: -5%) 

? Analysts estimate a DPS of N2.90 for FY’18 (Final: N2.60) 

Earnings track estimates, PAT up 13% y/y 

23 October 2018 : GUARANTY released its 9M’18 results, posting another set of impressive numbers. Although Q3’18 standalone performance was relatively weaker q/q, bottom line for the 9M period still came in impressive, up 13% y/y and 2% better than analyst's estimate. Whilst top line came in mildly below analyst's estimate – N337 billion vs. Vetiva’s N340 billion estimate – lower than expected expenses and provisions kept bottom line in check. Analysts note that the bank’s risk appetite remained low within the quarter as loan book moderated another 2% - taking ytd loan growth to -12%. Amidst this, Interest Income moderated 7% q/q despite a relatively stronger yield environment within the period. Hence, the income line for the 9M period came in 4% lower y/y at N238 billion, missing analyst's N245 billion estimate. Furthermore, with Customer deposits up 9% ytd, Interest Expense rose 14% y/y to N67 billion, coming in flat q/q and much in line with analyst's estimate. With this, Net Interest Income was down 10% y/y and 4% behind their estimate. More positively however, asset quality remained strong within the quarter with loan loss expense coming in at a modest N1.7 billion vs. Vetiva estimate of N5.9 billion – following a net N295 million write back within the quarter. Consequently, Operating Income was up 11% y/y to N266 billion – marginally lower than analyst's N268 billion estimate. However, with Operating Expense coming just in line with their estimate amidst a lower than expected effective tax rate, PAT rose 13% y/y to N142 billion – 2% better than their N140 billion estimate. 

Target Price revised to N51.53 (Previous: N51.58) 

Analysts are quite impressed with the persistence of GUARANTY’s earnings. The bank continues to set the benchmark within the banking sector with industry leading profitability. Analysts note that at the current earnings run rate, GUARANTY is on-track to set another record year of profitability. Whilst analysts cut analyst's Interest Income forecast lower to N317 billion (Previous: N326 billion) as they expect the bank to stay cautious, analysts raise their Non-Interest estimate marginally higher to reflect the outperformance from 9M’18. Similarly, analysts revise their loan loss provision downward (albeit still faster than 9M run-rate) to reflect improving asset quality. They however maintain their Operating Expense estimate and retain their tax assumption for the full year. Overall, they estimate a PAT of N184 billion for FY’18 – translating to y/y growth of 8%. 

Despite being the highest priced banking name in the Nigerian banking sector, analysts believe that the bank remains significantly undervalued – particularly when compared to regional peers. Following their model update, analysts revise their target price on GUARANTY to N51.53. With their expected ROA and ROE of 5.4% and 30.3% respectively for FY’18 and a market pricing of N36.80, analysts maintain their BUY rating on GUARANTY. 

Reporting for EasyKobo on Tuesday ,23 October 2018 in Lagos, Nigeria

Source: Vetiva Capital Management Limited