Price target unchanged due to 100bp upward revision to risk-free rate
GTBank management has guided to a FY '21 PBT of NGN243bn (+2% y/y). Excluding last year when PBT was broadly in line with guidance, the bank's earnings have exceeded guidance by at least c.5% over the last three years. We believe FY '21 earnings are likely to mirror those of FY'18-19 when the earnings variance vs. guidance was slightly over 5%. We struggle to understand the bank's NIM guidance of 8.0% (vs 9.3% for FY '20) given the prevailing yield environment and higher interest rate expectations, particularly for H2 '21.
GTBank's Q4 '20 PBT beat our forecast by c.14%. However, we have increased our '21-22f EPS forecasts by an average of 10%. Underpinning our earnings upgrades are upward revisions of around 10% to our funding income and non-interest income forecasts. Our funding income forecast for FY '21 is supported by a revised loan growth forecast of 10%, similar to guidance.
On its conference call, management was optimistic that the bank will be able to repeat most of the fx revaluation gains which featured prominently in its FY '20 results from two sources:
With respect to diversification, the target is for the African franchise to contribute c.USD100m to PBT in FY '21 (vs USD 85m in FY '20) and c.25-30% to earnings over the next three years from 15% in FY '20. Despite the upgrades to our earnings forecasts, our new price target is unchanged at NGN44.9 because we have increased the risk-free rate driving our DDM valuation by 100bps to 11.0% to reflect the uptick in government bond yields.
GTBank shares are trading on a '21 P/B multiple of 0.9x for 24.1% ROAE in '22f. These compare with the 0.6x multiple for an ROAE of 14.8% in '22 that our universe of banks stocks is trading on. Year-to-date, the shares have shed -10.5% vs. -4.1% NSE ASI. Our new price target implies a potential upside of 55% from current levels. We keep our Outperform rating.
Q4 PBT up 16% y/y, thanks to robust revenue growth
GTBank's Q4 '20 pre-provision profit expanded 22% y/y. The key drivers were a 42% y/y growth in non-interest income - mainly due to a substantial y/y growth in fx revaluation gains to NGN35bn - and funding income growth of 9% y/y. The solid growth in pre-provision profit overshadowed a marked spike in loan loss provisions and led to PBT growth of 16% y/y. Below the tax line, PAT (before other comprehensive income) increased by 19% y/y. Sequentially, PBT and PAT expanded by at least 22%, thanks largely to the robust growth in non-interest income.