Earnings Report /
Nigeria

Guaranty Trust Holding: Q3 19: Better-than-expected earnings and loan trends; reiterate Buy

    Olabisi Ayodeji
    Olabisi Ayodeji

    Equity Research Analyst, Banks (Africa)

    Tellimer Research
    16 October 2019
    Published by

    GTB’s unaudited Q3 results were better than expected. Net income rose 2% yoy to NGN47.5bn, ahead of our NGN42.1bn forecast. The earnings beat was largely due to a NGN5.2bn FX revaluation gain largely from subsidiaries, which we had not anticipated. The net interest margin and cost/income ratio were broadly in line with our expectations, at 6.4% and 35%, respectively, while significant loan recoveries resulted in a cost of risk of less than 0.1% (on our estimates) vs. our 0.2% forecast. Compared with Q2 19, net income was down 4%, due to lower asset yields and loan loss recoveries.

    Gross loan volumes shot up by 9% qoq in Nigeria (8% growth at the group level). This trend drove GTB’s loan/funding ratio to 58% from 53% in H1 19 for Nigeria, with further support from a decline in liabilities (deposits and borrowings fell 1% and 4% qoq, respectively). That said, we note that the bank is still behind, given the deadline of 31 December 2019. Asset quality ratios improved at the group level, with the NPL ratio moderating to 5.6% (down 1.2ppts qoq) and NPL provisions coverage rising to 90% (up 10ppts qoq).

    Reiterate Buy rating with NGN46.00 TP and 84% ETR. GTB’s profitability and capital ratios remained robust in 9M 19 (37.9% ROE and 23.5% CAR) and are largely sustainable in our view. We also like its strong digital and retail banking franchise, which outperformed our expectations on: 1) sustaining operating efficiency (cost/income was stable at 38% in 9M 19 despite a drop in non-core revenues); 2) strong non-interest revenues (e-business and transaction/account related income were up 23% yoy on aggregate); and 3) robust cheap retail deposits. GTB currently trades on FY 20f PB of 1.0x, in line with frontier peers.

    Our recently updated earnings forecasts and valuation estimates for GTB and the rest of our Nigeria banks coverage can be found at this link: Nigeria Banks: Good fundamentals, but tricky technicals; Buy

    Table 1: Financial results summary 

    NGNmnQ3 19Q3 18yoyQ2 19qoq

    Net interest income (NII)

    56,572

    52,712

    7%

    58,148

    -3%

    Non-interest revenues

    28,054

    30,625

    -8%

    31,741

    -12%

    Total income

    84,627

    83,337

    2%

    89,888

    -6%

    Total opex

    29,727

    32,256

    -8%

    33,994

    -13%

    Pre-provision profit

    54,899

    51,082

    7%

    55,894

    -2%

    Net attributable profit

    47,520

    46,412

    2%

    49,426

    -4%

    Net loans

    1,377,920

    1,270,093

    8%

    1,272,858

    8%

    Total deposits

    2,390,474

    2,238,928

    7%

    2,417,810

    -1%

    NII / assets

    6.4%

    6.0%

     

    6.5%

     

    Cost / income

    35%

    39%

     

    38%

     

    ROE

    31.0%

    36.9%

     

    32.8%

     

    NPL ratio

    5.6%

    5.6%

     

    6.8%

     

    *NPL provisions coverage

    90%

    156%

     

    80%

     

    Source: Company accounts, Tellimer Research. * Excluding statutory reserves.