GTB Plc - Market Leading Earnings, PAT Beats Estimate


Thursday, October 19, 2017 9:28 AM /Vetiva Research

Earnings beat despite weaker top line

Contained loan loss provision – 44% better than our estimate

Cautious credit stance, loan portfolio declines 10% 

Earnings beat despite y/y moderation in top line
GUARANTY continues to post strong earnings performance with PAT coming in ahead of our estimates – beating already impressive earnings run rate. Whilst Gross Earnings moderated 6% y/y to 310 billion (3% below our estimate), PAT rose 5% y/y to 126 billion – ahead of our 115 billion estimate and translating to a notable 41% PAT margin. 

Amidst a return to normalcy of NonInterest Income (down 59% y/y) - following prior year’s high base due to huge FX revaluation gains and E-business income, Interest Income rose 36% y/y – tracking our
249 billion estimate. In line with the general industry trend, high interest rate environment and strong yield on assets continue to support top line performance despite weak credit growth (ytd: -10%). 

Furthermore, GUARANTY continued to benefit from the improving macroeconomic environment, reporting a modest
8.4 billion loan loss provision vs. our 14.8 billion estimate and significantly lower than the 57.1 billion reported in 9M’16. Also, with Operating Expense contained to a modest 9% y/y growth (11% lower than our estimate), PAT came in at a record high of 126 billion. 

On a q/q basis, we highlight the upward trending Interest Expense (up 22% q/q) and the significantly weak Non-Interest Income (Q3’17:
12.6 billion – lowest normalized quarterly performance in over the last 4 years) as a cause of concern. However, strong Interest Income, moderating OPEX, and improving asset quality should bode well on earnings going forward.


Target Price revised to N43.63 (Previous: N39.15)

We have revised our model to reflect the deviations across most line items. Notably, we cut our loan loss provision to 12.5 billion (Previous: 19.8 billion) to reflect the lower than expected NPL formation rate. Also, despite revising our loan growth forecast to -5% (Previous: 0%), we maintain our Interest Income estimate at 332 billion, supported by the elevated interest rate.


However, we cut our Non-Interest Income to 83.0 billion (Previous: 92.8 billion). That said, we remain cautious and forecast a higher run rate for Operating Expense in Q4’17, translating to 122 billion (Previous: 128 billion) for FY’17.


Overall, we raise our FY’17 PAT forecast to 162 billion (Previous: 153 billion) – translating to an EPS of 5.49 (Previous 5.20). GUARANTY trades at a premium to industry peers with P/B and P/E ratios of 2.1x and 7.6x vs. Tier I average of 1.0x and 5.2x respectively.


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