The Bank recently released its unaudited Q3 2019 to the Nigerian Stock Exchange. The bank recorded gross earnings of N324.15 billion in the period under review representing a 3.16% decline in earnings from N334.76 Billion in the corresponding period of 2018. This was as a result of a decline in interest income and trading income from the financial instrument by 5.62% and 51.93% respectively. Interest Expense declined by 23.39% from N66.90 Billion to N51.25 Billion in Q3 2019.
The decline in interest expense was driven by a drop in interest expense on deposit from customers and interest expense on borrowed funds by 20.45% and 10.32% respectively. Consequently, Net interest income improved by 1.35% in the period under review. The decline in interest income was cushioned by a larger decline in interest expense.
However, the increase in Non-interest income (other incomes, and fees and commissions) could not offset the drop in gross earnings.
Fees and commission grew by 19.90% driven by it E-business, income from foreign exchange deals and credit-related fees which spiked by 63.10%, 16.64% and 37.05% respectively.
The bank’s Profit Before Tax (PBT) increased by 3.90% from N164.24 Billion in Q3 2018 to N170.65 Billion in Q3 2019. Meanwhile, the Profit After Tax (PAT) increased by 3.35% y/y to stand at N146.98 Billion.
Our weighted average valuation of our Dividend discount model and our Residual Income Model (RIM) with a loan book expansion of 10% from FY 2018 guidance and a forward P/E ratio 4.15x.
Our target price for GUARANTY is at NGN41.30, a 57.03% upside from the current price, we recommend BUY for this counter.