Guaranty Trust Bank Plc - Upward Revision to FY-2017 EPS


Thursday 24th August 2017 9:22AM/ Cordros Capital

In its recently released H1-17 results, GUARANTY's non-interest revenue (NIR) declined significantly by 52.85% y/y, reflecting a lower than expected FX revaluation gains which by our understanding, is as a result of the lower exchange rate adopted by the bank (N317/USD1 vs. the average NIFEX rate of N328/USD1). Despite assuming a higher exchange rate might be adopted in the course of the year, we believe NIR will still lag FY-16 by 30.17% y/y to N111.68 billion.

Thus, we expect NIR contribution to gross earnings to drop to 34.33% in 2017F, compared to FY-2016's 35.86%. Following the expansion in asset yields in H1-17 (rose 299 bps y/y to 14.51%), we have reviewed our 2017F asset yield estimate 65 bps higher to 13.60%, resulting in interest income growth of 31.3% y/y to N344.77 billion. Accordingly, we forecast gross earnings to grow 10.70% (previously 5.51%) y/y in 2017F to N458.99 billion.

We maintain our cost of fund estimate of 3.15% for 2017F (34 bps y/y uptick from 2.81% in FY-16) which we forecast will drive 19.77% y/y growth in interest expenses to N80.36 billion (a reflection of the relatively tight domestic system liquidity – which has driven upward repricing of deposits -- as well as the impact of the US Feds rate hike, with 6 months LIBOR of 1.46% as at July, from 1.29% in December 2016). However, we expect the impact of the higher funding cost will be marginal on net interest margin, wherein we forecast a 177 bps y/y expansion to 10.78%.

We expect a cut back in loan loss provisioning in 2017F on possible reclassification of some NPLs 9expected to decline to 3.55%) owing to the (1) successful restructuring of exposures across sectors, specifically FCY loan exposures, (2) relative stability in oil production and prices, with attendant impact on oil & gas upstream obligors cash flow, and (3) improved FX availability to manufacturers and oil & gas downstream obligors. Given the ongoing restructuring of Etisalat Nigeria (now 9Mobile) for a possible sale in the interim, we believe a haircut is eminent on the exposure. And while the bank's management guided to a less aggressive impairment provisioning this year, given the c.N60 billion collective impairment booked in the previous year, we have adopted a more conservative approach for provisioning during the year. Hence, we forecast cost of risk of 2.15% (213 bps lower y/y, but above management guidance of 1-2%), translating to a 46.39% y/y decline in impairment charge to N34.99 billion in 2017F.

Noting the surge in opex over H1-17, which by our understanding was driven by a one-off charge (rather than amortized over the year) for regulatory levies (specifically AMCON levy) in line with International Financial Reporting Interpretations Committee 21, we look for a lower opex charge for the rest of the year. Accordingly, forecast 16.43% y/y growth in opex to N132.31 billion, translating to a cost to income ratio of 38.35% and operational leverage of 4.0x, compared to 40.76% and 4.0x, in FY-16, respectively. Overall, we forecast PBT and PAT growth of 23.63% and 28.25% to N210.27 and N169.65 billion respectively, equating to a 271 bps and 28.25% expansion in RoAE (20117F: 31.52%) and EPS (2017F: N5.76), respectively.

Following the upward adjustment to EPS, we raised our target price by 10.05% to N42.45 (previous: N38.57) and rolled forward our valuation to 2018. GUARANTY is currently trading at 2017F P/BVPS of 2.1x (above peer average of 0.9x and a 5-year average of 1.9x) and 2017 FP/E of 7.1x (above peer average of 5.6x and a 5-year average of 6.8x). HOLD

Related News

GTBank Plc H1 2017 Conference Call & Earnings Presentation - The Key Takeaways
Guaranty Trust Bank - Despite 52.85 YoY Decline in NIR, EPS Rose 13.73% YoY in H1-2017
Guaranty Trust Bank Plc - Earnings Advance on Lean Provisioning
Guaranty Trust Bank Plc Announces Board Meeting Date and Closed Period
Guaranty Trust Bank Plc - Notice of Effectiveness of Issuer Substitution
GTB Notice of Issuer Substitution
Guaranty Trust Bank Plc Announces Board Meeting Date and Closed Period
Hearing on Suit by Aderinokun's Daughter against GTBank, Others Fixed for March 24
GTBank Appoints Jubril Mobolaji Lawal as an Executive Director
GUARANTY Declares N83.68bn PAT in Q2 2017 Results; Proposes 30k Interim Dividend,(SP:N38.92k)
GUARANTY Declares N41.48bn PAT in Q1 2017 Results,(SP:N26.05k)
What To Expect From The Markets This Week - 030417
GTBank Launches New Mobile App, GTWorld with Biometric Authentication
Corporate Earnings for the Week Ending 180817 – GUARANTY Declares N83.68bn PAT in Q2 2017 Results

Related News