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GTBank Q3 2016 Results Review- Limited Changes to Earnings ests and Price Target

Proshare

Monday, November 14, 2016 11:52 AM /FBNQuest Research

Provisions and opex loomed large...

On an annualised basis, GT Bank’s 9M 2016 PAT of N129bn is in line with management’s ROE guidance of “above 25%”. The fact that the bank’s Q3 2016 results featured strong fx-related gains did not come as a surprise to the market. Similar to Q2, although fx revaluation gains were welcomed, the scale of the provisions, though down q/q, and opex rising 33% q/q were meaningful.

 

Both were related to naira devaluation. With respect to the former, we understand the additional provisions are mainly due to prudential steps by management, not because of specific loans going bad (the NPL ratio moved down slightly to 4.1% in Q3 from 4.4% in Q2; as such the coverage ratio improved to 185% from 170%).

 

As for opex, inflationary pressures stemming from naira devaluation appears to be behind the growth, similar to what some peers have reported.  We have made modest changes to our earnings forecasts and price target.

 

Q4 results should give us a clearer picture of normalised earnings since our expectation of a stable naira in the near terms implies that fx-related gains should be modest or non-existent. We retain our Neutral recommendation.

 

...weighed on fx-related gains

GT Bank’s Q3 2016 PAT of N46bn grew strongly, by 97% y/y, off the back of a PBT result of N49bn, up 71% y/y. PAT growth was stronger y/y due to other comprehensive income of N4.3bn, which was up 172% y/y. Both funding income and non-interest income were up, by 34% y/y and 184% y/y to N53.6bn and N46.3bn respectively.

 

The strong income lines offset negatives for both opex and provisions. While opex was up 25% y/y to N31bn, provisions grew by 662% y/y to N19.5bn. Non-interest income was boosted by fx revaluation gains of around N30bn. Though less than what the bank booked in Q2 (hence total non-interest income falling by -42% q/q), it was still significant.

 

A 33% q/q rise in opex combined with the q/q decline in non-interest income more than offset any benefits coming through from a 40% q/q growth in funding income and a -43% q/q decline in provisions. As such, PBT declined by -19% q/q. Compared with our estimates, Q3 PBT beat by 18% on the back of positive surprises on both income lines while PAT was ahead by 22%.

 
Funding income and non-interest income were both ahead by 29% and 53% respectively to more than offset negatives on both the opex and provision lines. Provisions negatively surprised by around 230%.



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