GUARANTY Records 44% Growth in PBT; Thanks to Strong Result in Non-Interest Income


Thursday, March 5, 2015 5:29 PM / FBN Capital Research


Event: GT Bank reports Q4 2014 results

Implications: Market reaction likely to be slightly positive

Positives: Q4 PBT up 44% y/y thanks to a very strong result in non-interest income

Negatives:  Q4 opex up 25% y/y to N26.6bn

This afternoon the NSE published GT Bank’s Q4 2014 results which showed that PBT and PAT grew strongly, by 44% y/y and 56% y/y to N35.7bn and N30.9bn respectively, well ahead of the single-digit growth posted for both lines in Q3 2014. Funding income grew by single-digits (6% y/y) – an improvement over the 3.3% y/y growth recorded for 9M 2014 - to N37.1bn.

However, a marked growth (+135% y/y) on the non-interest income line provided a significant boost, leading to profit before provisions growing by 37.2% y/y to N63.3bn. Our checks indicate that FX trading income was a major contributor to the strong result in non-interest income.

This performance on the non-interest income line more than offset a 25% y/y rise in opex, and led to PBT growing by 44% y/y to N35.7bn. Sequentially, the trends across the P&L were similar to those on a y/y basis with funding income growing by 10% q/q (probably helped in part by an 11% q/q expansion in the loan book outpacing a 7% q/q rise in deposits), while non-interest income grew much faster (52% q/q), helping to drive PBT up 31% q/q, despite increases of 17% q/q and 10% q/q in opex and loan loss provisions respectively.

Compared with our estimates, Q4 2014 PBT and PAT beat by 32% and 36% respectively, mainly because the non-interest income significantly exceeded our expectations. To a lesser extent, a better-than-expected result on the provisions line also helped.

On a full year basis, GT Bank’s PBT of N116.4bn came in ahead of management’s full year guidance of N110bn. The PBT also came in ahead of consensus full year PBT forecast of N109bn.

Given that the positive surprise in the results was driven by non-interest income (and in particular FX trading), we do not expect much of the surprise to be carried forward as far as consensus forecasts are concerned.

More importantly, these results do not yet reflect the fallout from the worst of the marked decline in oil prices. We believe that GT Bank will fare better than most banks and should be viewed as a core holding for investors through the challenging times ahead.

However, we also acknowledge that growth, particularly for risk assets, is bound to slowdown in 2015. GT Bank’s exposure to the oil and gas sector at over 20% of its loan book is a slight concern also.

GT Bank has proposed a final dividend of N1.50 (interim was 25kobo). The payout ratio (for the full N1.75) of 55.2% implies a dividend yield of 7.9%. The final dividend figure is higher than our N1.36 estimate.

Our estimates are under review. We rate GT Bank shares Neutral.

Conference call details: likely Friday, March 13. Full details yet to be circulated.

GT Bank Q4 2014  results vs. FBN Capital estimates

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