Guaranty Trust Bank Plc: Superior profitability maintained

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  • FY’19 Interest Expense expectation revised 8% down
  • Loan book growth expectations revised down to 5%
  • FY’19 profit forecast upgraded to ₦219.9 billion (Previous: ₦208.9 billion)
  • TP raised to ₦51.49

Strong Fees and Commissions growth props top line

GTBank closed the H1’19 period with impressive scorecards across key profitability metrics. The Bank achieved Gross earnings of ₦221.8 billion for the period, 2% lower y/y and 1% behind our forecast. This was due to the bank achieving interest income of ₦74.5 billion in Q2’19, flat q/q but 1.7% shy of our Q2’19 estimate. Net interest income of ₦58.1 billion also came in flat q/q, albeit 7.5% above our Q2’19 estimate following lower than expected cost of funds. For H1’19, Net Interest Margin (NIM) dipped marginally y/y to 9.55% from 9.61% in H1’18 (Q1’19: 9.9%). The other contributor to topline – Non-interest income (NII) was up 3.6% q/q in Q2’19 to ₦37.1 billion; H1’19 NII also increased 13% y/y in line with our estimate, to contribute 32.9% to Gross Earnings from 28.6% in H1’18. Growth in NII was driven by y/y increments of 29% and 13% respectively in Fees & Commissions and other income which offset the 25% decline in net gains on financial instruments in H1’19. Consequently, Operating Income grew 1.3% q/q and 3.7% y/y to ₦95.3 billion in Q2’19 and ₦189.4 billion in H1’19.

Optimal cost management improves cost-to-income

The bank achieved an H1’19 cost-to-income ratio of 37.6% (H1’18: 38.8%) closely in line with our estimate (37.4%). The bank also recorded flattish growth in Opex (+0.4% y/y), with personnel cost unchanged at ₦18.6 billion, while other operating expenses moderated to ₦39.4 billion from ₦42.0 billion in H1’18. Consequently, all our FY’19 operating cost estimates remain unchanged as GTBank continues to lead in operational efficiency across the banking sector.

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FY’19 Asset quality remains a priority over loan growth

The 1.6% YTD growth in net loans achieved in Q1’19 moderated to 1.0% by H1’19 from ₦1.262 trillion as at December 2018 to ₦1.274 trillion, as the bank’s retail penetration strategy was constrained by the operating environment during the review period. We believe the bank will struggle to attain the 10.0% y/y loan growth target and have revised our expectation downward to 5% y/y with greater optimism on an improvement in FY’19 asset quality via recoveries. H1’19 NPLs reduced to ₦91.6 billion (FY’18: ₦99.4 billion), moderating the bank’s NPL ratio by 50bps to 6.8% with declines across major sectors excluding general commerce, manufacturing, services and individuals. As such, we project a FY’19 NPL ratio of 5.8% for the counter, supported by the aforementioned recoveries from the telecoms sector which are scheduled to berth by September 2019.

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Valuation becomes more compelling

We adjusted some of the line items based on the variance from our previous estimates. We slightly revised our FY’19 Net Interest Income to ₦227.1 billion (Previous: ₦223.4 billion) due to the lower realized Interest Expense. Thus, our PBT forecast is raised to ₦253.9 billion from ₦215.6 billion to reflect the bank’s strong cost efficiency. Overall, we expect PAT to print at ₦219.8 billion in FY’19 (FY’18: ₦183.8 billion), yielding a forward EPS of ₦7.47, DPS of ₦3.41 and a revised value estimate of ₦51.49 (previous: ₦50.20), offering a
potential upside of 89.6% on current market price, thus we maintain our BUY recommendation on the stock.

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Guaranty Trust Bank Plc: Superior profitability maintained - Brand Spur

Guaranty Trust Bank Plc: Superior profitability maintained - Brand Spur

VETIVA RESEARCH

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Guaranty Trust Bank Plc: Superior profitability maintained - Brand SpurGuaranty Trust Bank Plc: Superior profitability maintained - Brand Spur

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Guaranty Trust Bank Plc: Superior profitability maintained - Brand SpurGuaranty Trust Bank Plc: Superior profitability maintained - Brand Spur

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