GTB’s Q2 19 results were broadly in line with our forecasts. Pre-provision profits rose by 2% yoy, supported by improved cost efficiency (operating expenses fell by 7% yoy), as net interest income and non-core revenues declined. However, PAT fell by 2% yoy, as the effective tax rate rose by 3ppts yoy to 15%, and offset the impact of higher loan and other recoveries (the cost of risk was -0.8% versus -0.6% in Q2 18). Interim DPS of 0.30 was declared (flat yoy), also in line with our expectations, which implies a yield of 1.2%. Compared with Q1 19, PAT was up by 1% as lower operating costs offset weaker revenues and a higher impairment charge. Audited results for other banks should also be published in August – we discuss our expectations are here.
Reiterate Buy rating with NGN50.00 TP and 104% ETR. GTB’s profitability and capital ratios remained robust in H1 19 (5.7% ROA 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) sustained operating efficiency (cost/income was stable at 39% despite a decline in non-core revenues); 2) robust non-interest revenues (e-business and transaction/account related income was up by 31% yoy on aggregate); and 3) the gathering of cheap retail deposits (deposits in the retail segment rose by 9% versus end-FY 18 and the cost of deposits fell by c0.8ppts yoy to 2.2%). GTB currently trades on FY 19f PB of 1.1x, versus frontier peers at 1.0x.
Loan and deposit volumes were flat qoq (down by 1% and up by 6% ytd), with loans falling considerably behind management’s 10% growth guidance and our 6% forecast for the full year. We expect more clarity during the earnings call (which is likely to be held in the coming week), but estimate the Nigeria bank entity closed the quarter with gross loans/deposits of c61% (applying a 150% weighting to loans for the retail and SME segments), which is slightly higher than the Central Bank of Nigeria’s 60% minimum threshold. Non-performing (stage 3) loans fell by 4% qoq, resulting in a 6.8% NPL ratio (down by 0.2ppts qoq), with NPL provisions coverage of 90% (up by 5.0ppts qoq).
| NGNmn | Q2 19 | Q2 18 | yoy | Q1 19 | qoq |
|---|---|---|---|---|---|
Net interest income (NII) | 58,148 | 58,241 | 0% | 58,217 | 0% |
Non-interest revenues | 31,741 | 33,259 | -5% | 29,181 | 9% |
Total income | 89,888 | 91,500 | -2% | 87,399 | 3% |
Total opex | 33,994 | 36,684 | -7% | 35,878 | -5% |
Pre-provision profit | 55,894 | 54,816 | 2% | 51,521 | 8% |
Net attributable profit | 49,426 | 50,662 | -2% | 48,913 | 1% |
Net loans | 1,262,875 | 1,291,258 | -2% | 1,281,458 | -1% |
Total deposits | 2,417,810 | 2,268,757 | 7% | 2,410,393 | 0% |
NII / assets | 6.50% | 6.60% |
| 6.81% |
|
Cost / income | 38% | 40% |
| 41% |
|
ROA | 5.53% | 5.74% |
| 5.72% |
|
NPL ratio | 6.81% | 5.76% |
| 7.03% |
|
*NPL provisions coverage | 90% | 148% |
| 85% |
|