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GTBank Q2 2017 Results Review - Pausing for Breath After Strong YTD Gains

Proshare

Wednesday, August 23, 2017 10:51AM / FBNQuest Research

Moving to Neutral after strong outperformance
GT Bank’s Q2 2017 results came in better than ours and consensus forecasts due to positive surprises in non-interest income and loan impairment charges. Its H1 2017 PBT of N101bn puts it on track to beat its guidance of N168bn and ROAE of 25%+. We have increased our 2017E-2018E non-interest income forecasts by an average of 11% but kept our cost of risk estimate unchanged at 1.7% in 2017E.


Although the 1.7% is within the reiterated guidance of 1-2%, it is higher than the 0.9% average in H1. Management was reluctant to revise the cost of risk guidance down (i.e. to improve on it), despite a very healthy coverage ratio of over 200%; instead, it stated that ongoing (general) risks justifies its conservatism.


The revisions to our forecasts underpin a 7% average increase to our earnings estimates over the 2017E-18E period. Notwithstanding the modest increases to our EPS forecasts, our new price target of N41.6 is 37% higher because i) we have rolled over our valuation to 2018E and ii) revised the cycle ROE assumption in our normalised DCF to 27.5% (from 20% previously).


Having gained 64.8% ytd vs. 37.5% for the ASI, the shares are now trading close to our price target (and imply a potential upside of just 2% from current levels). Consequently, we downgrade our recommendation on the shares to Neutral from Outperform.


Positive earnings surprise in Q2; PBT beat by 13%
 

GT Bank’s Q2 2017 results surprised positively. Q2 PBT came in around 13% ahead of our forecast. On a y/y basis, Q2 PBT declined by 8% y/y to N51bn.  

Although a 24% y/y spike in opex contributed, a 67% y/y decline in non-interest income, mainly due to negative base effects arising from strong fx revaluation gains in Q2 2016, was the major driver behind the y/y decline in PBT.  

These negatives completely offset a 66% y/y growth in funding income to N63bn and a -90% y/y reduction in loan loss provisions.  

Further down the P&L, PAT declined even more, by -26% y/y, due to negative base effects on the other comprehensive income (OCI) line which came in at N12.9bn in Q2 2016 compared with N601m in Q2 2017.  

Sequentially, PBT came in flat, mainly because of a 13% q/q increase in opex and a- 4% q/q decline in funding income. In contrast to the y/y trends, non-interest income grew by 33% q/q.


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