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Tuesday
December 01, 2020 / 05:05 PM / by FBNQuest Research/ Header Image
Credit: Business Day
3%
cut to our 2020-21E EPS forecasts
GTBank's
(GTB) Q3'20 results were in-line. As such, the mid- single-digit PBT growth
delivered by the bank underscores its intent to restructure into a holding
company (Holdco), flexible enough to allow it pursue opportunities in other
fast-growing segments of the financial services sector - i.e. insurance,
pensions, etc. If properly executed, the bank's entry into these fast-growth
segments will help diversify its revenue base and drive earnings growth beyond
the mid-to-high single-digit range that it is currently delivering. Following
its results, we have cut our 2020-21E EPS forecasts by c.-3% on average.
Despite
the modest revisions to our earnings forecasts, our new price target of NGN62.6
is 17% higher because we have cut the risk-free rate driving our DDM valuation
model to 6% to reflect the compression in government bond yields. GTB's NPL
ratio improved by 30bps q/q to 6.5% despite a 4% q/q reduction in its gross
loan book. Its gross coverage ratio is also healthy at 123% and is up c.520bps
q/q. Although its liquidity ratio of 38.8% is comfortably above the 30%
regulatory minimum, it is down considerably from c.49.3% as of end-2019, mainly
because of discretionary CRR debits by the CBN.
Our
unchanged PBT forecast for '20f implies flattish growth y/y at c.NGN229bn, or
just c.2% lower than management's 2020 guidance of NGN235bn. Our revised
forecasts translate to an ROAE of 27.4%, in-line with ROAE guidance of >25%.
We note that the bank's current valuation of 1.2x 2020E P/B is still at a
considerable discount to its historical mean of 1.8-2.0x. Although GTB shares
have rallied in recent weeks on the back of the broad-based market rally and
ample liquidity from maturing fixed income securities, since then the shares
have shed -13.1% from their peak price (ytd) of NGN38.2 attained on 12 November
(vs -0.8% NSE ASI). Consequently, our new price target implies a potential
upside of 88% from current levels. We retain our Outperform rating on the
shares.
Q3'20 PBT up 5% y/y, driven by pre-provision profit growth and y/y reduction in
opex
Q3'20
PBT grew 5% y/y on the back of a 6% y/y increase in pre-provision profit and a
2% y/y reduction in opex. Pre-provision profit growth was driven by a 10% y/y
increase in funding income, thanks to a sharp reduction in interest expense. In
contrast, non-interest income declined by -2% y/y. Below the tax line, PAT was
flat y/y because of a 390bp y/y increase in the effective tax rate to
16.7%.
Sequentially,
PBT expanded by 12% q/q following reductions of 39% q/q and 33% q/q in loan
loss provisions and opex. However, PAT fell by 27% q/q because of a negative
result of -NGN4.4bn in other comprehensive income (OCI) vs. +NGN15.7bn in Q2.
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