Bank of America (BofA) Merrill Lynch Global Research has placed it Buy recommendation on GTBank stock describing it as having the “best operating efficiency.”
It said Nigerian banks underperformed the rest of EMEA Year to Date with persistent asset quality problems, which is expected to continue into 2010. “However, one bank stands out as the out-performer, GTBank. We see GTBank as the best in class bank within Nigeria that provides exposure to upside surprises to the oil and macro economic story. It has the best operating efficiency, the lowest 2010E NPL ratio, and a strong capital base adequate to absorb the anticipated provisions.
“Despite the out performance YTD, it is still trading at only 6.3x 2011E PE, showing significant discount to peers at 9.4x - 30x PEs. We are now raising it to a Buy with a PO of NGN18, offering 17 per cent upside potential. In our opinion, GTBank is the best play for the long-term potential of this under penetrated banking sector in Nigeria,” said a statement from the global research company.
It added that upgrading GTBank to a bu-, BofA Merrill Lynch Global Research has a constructive view on the global and regional recovery for 2010 as highlighted by its economic team’s Emerging EMEA year ahead. “With this in mind, it would not seem unreasonable to us to go into 2010 with a Buy recommendation on a Nigerian bank, despite broader/underlying sector problems.
“We upgrade GTBank to a BUY and see it as a longer-term beneficiary of improving fundamentals in a consolidated sector. Our PO at NGN18 offers 17percent upside potential. The bank has outperformed its peers in 2009 and we would expect this to continue. In our opinion, management’s focus on cost efficiency, asset quality and profitability should over time translate into shareholder value. “We have incorporated harsh NPL and provisioning assumptions into our base-case forecasts but still see the bank delivering 11 per cent ROEs in 2010E and + 20 per cent in 2011E,” the report stated.
Analysing key points of the stock it said: “Fundamentally, we view GTBank as the strongest bank, with strong pre-provision profitability – thanks to best in-class operating efficiency – which gives the bank ability to absorb sizeable provisioning charges and we view our 2010E/2011E forecasts as conservative.