Guaranty Trust Bank: Moderation in Earnings –Non-Interest Income Grows Y/Y.

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GTBank declares an interim dividend of 30 kobo per share

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.

Source: Company Filings, Greenwich Research

Greenwich Research