GCB Bank: Stellar FY 19 results – Strong core revenue growth and loan book expansion, Buy

GCB released its abridged FY 19 results which saw PAT rise 31% yoy to GHS428mn, above our GHS350mn forecast due to: 1) better-than-expected interest income which was boosted by impressive growth in loans; and 2) higher-than-expected non-interest income (up 29% yoy). Other positives include a 2.0ppts improvement in ROE and 2ppts decrease in the cost/income ratio which fell to 59%.

GCB is our top pick within the Ghana banking space with a Buy rating and an unchanged target price of GHS12.2, which now offers an ETR of 177%. This view is supported by the bank's: 1) strong loan growth prospects supported by its robust balance sheet; 2) increasingly efficient operating environment on account of its digital banking investments and post-merger synergies; and 3) attractive valuation with 2019f PB of 0.7x – a 30% discount to Ghana peers.

Key positives

1. Impressive growth in net interest income (up 21% yoy mostly due to increased loan book) and non-interest income (up 29% yoy) which received a significant boost from trading income (up 57% yoy).
2. Operational efficiency saw cost/income ratio improve by 1.8ppts yoy as the bank’s investments in digital technology and consolidation synergies continue to bear fruit.
3. Strong balance sheet growth saw loans increase by 26% qoq as GCB continued its drive toward expanding its retail banking franchise.

Negatives

1. On a quarterly basis, net interest margin shrank by 0.65ppts, which we think is reflective of the general downtrend in yields on loans (increased competition in retail lending space pushing rates lower) and investment securities.