Tuesday, April 24, 2018
10% inc. to our price target driven by 100bp cut to risk free rate
GT Bank’s (GTB) Q1 2018 PBT came in only slightly ahead of our forecast. Consequently, we have raised our 2018-19E forecasts by just a touch (c.1.2%). However, our new price target of N50.4 is 9.7% higher because we have cut the risk-free-rate driving our DCF valuation by 100bps to 13% to reflect the declining yields on government securities. Following the positive surprise in non-interest income and provisions, we have increased our 2018E non-interest income forecast by 5% and lowered our cost-of-risk assumption by around 10bps to 0.7%. Despite a 7% q/q decline in the loan book, we have maintained our loan growth forecast of 11% (management’s guidancecalls for 10%).
Our new forecasts imply a 2018E PBT of N204.6bn, just shy of management’s N205bn guidance and translate to a 2018E ROAE of 26%. On a relative basis GT Bank shares are trading on a 2018E P/B multiple of 1.8x for 24.7% ROAE in 2019E. Although our new price target implies a potential upside of around 15% from current levels, we retain our Neutral rating on the shares because we find greater upside potential elsewhere within our coverage universe.
Q1 2018 PAT up 8% y/y
GT Bank’s Q1 2018 PBT grew by 4% y/y to N52.6bn. The single-digit y/y growth was driven by a -52% y/y reduction in loan loss provisions and a 41% y/y growth in non-interest income. The growth in non-interest income was largely underpinned by fx revaluation gains of N5.5bn (vs. –N306.4m Q1 2017). In contrast, funding income declined by -10% y/y. Further down the P&L, PAT grew by 8% y/y to N44.4bn, thanks to a lower effective tax rate of 15.1% vs. 17.7% Q1 2017. Sequentially, PBT grew 5% q/q; again, the reduction in loan impairment charges was the major driver. However, PAT fell by 13% q/q because of a 50% q/q spike in taxation. Compared with our forecasts, PBT and PAT beat by 6% and 8% respectively, because noninterest income surprised positively.