Guaranty Trust Bank Plc recently announced its results for the Q1-2020, which showed moderate growth in PAT of 1.6% to N50.07bn from NGN49.30 billion. The bank increased interest income by 10.4% to NGN64.28 YoY, as lower e-business earnings and credit-related fees dampen robust FX gains. Hence, Non-interest income declined by 1.1% YoY to NGN34.91 billion as operating expenses and loan impairment grew by 10.9% to NGN39.77 billion and 87.8% to NGN1.22 billion, respectively.
• Interest income advanced by 3.4% YoY in Q1-2020 to NGN77. 04 billion from NGN74.48 billion. This was supported by growth from loans and investment securities as both printed 8.1% and 10.3% growth, to NGN1.62 trillion and NGN1.02 trillion, respectively.
• Interest expense declined by 21.6% YoY to settle at NGN12.75 billion from NGN16.26 billion as the bank improved its CASA mix during the year (low-cost deposits: current and savings accounts) thereby reducing funding cost. On the back of effective balance sheet management, net interest margin was strong at 10.4% YoY to NGN64.28 billion from NGN58.21 billion as a result of a 6.1% YoY rise in income from loans and advances to customers (NGN46.41 billion vs NGN43.74 billion in Q1-2019) and an 8.2% jump in income from investment securities (NGN28.95 billion vs NGN26.75 billion in Q1-2019).
• Account maintenance charges which grew by 8.2% (NGN3.29 billion) could have supported income from fees and commission line, but the declines in credit-related fees (38.8%, NGN2.78 billion vs NGN4.54 billion) and e-business (21.5%, NGN2.49 billion vs NGN3.18billion) were significant enough to offset gains. Hence, income from fees and commission declined by 22.0% to NGN14.46 billion from NGN18.55 billion in Q1-2019.
• Operating expenses rose by 10.9% to NGN39.77 billion with AMCON as the highest regulatory burden (+11.2% to NGN8.59 billion) and NDIC premium (+17.8% to NGN2.38 billion). Consequently, costs-to-income ratio settled at 40.6% higher than 38.6% in the same period last year in the wake of the OPEX’s rise (10.9% to NGN99.20 billion) relative to increase in operating income by 6.1% to NGN39.77 billion. Profitability thus improved with a 2.1% rise in profit-before-tax for the year to NGN58.20 billion, while profit-after-tax was marginally up by 1.6% to NGN50.06 billion.
Valuation and Analyst’s Comment
We place a BUY recommendation on Guaranty Trust Bank Plc. with a 12-month target price of NGN39.24 – translating to an estimated capital gain of 103.29%% from its April 24, 2020 closing price of N19.30. Given strong risk management by the bank and the regulatory forbearance from CBN to all banks on the back of COVID-19 led economic downturn, we expect a moderate asset quality. We also expect the bank to continue to take advantage of the high value of its investment securities amidst low yield.