Friday, April 26, 2019 09:20AM /
2% avg. increase to our 2019-20E EPS forecasts
GT Bank’s (GTB) Q1 2019 results surprised positively relative to our forecasts. As such, we have upgraded our 2019-20E EPS forecasts by an average of 2% and our price target by c.4% to N48.5. On annualised basis, the bank’s Q1 PBT tracks well ahead of management’s 2019 PBT guidance of N220bn and implies an ROAE of 34.7% vs. the >25% ROAE that management has consistently guided to over the last couple of years. We believe management’s guidance is conservative.
Consequently, we have increased our 2019E PBT forecast by 2% to c.N231bn on the back of a 3% increase to our funding income forecasts. In terms of asset quality, GTB’s NPL ratio was stable relative to that of the prior quarter at c.7.0%. However, we expect the ratio to move down to c.5% levels by end-2019 once a classified exposure in the general commerce space is resolved. The shares have shed about -8.0% in the last 1 month vs. -3.6% ASI.
On a relative basis, GTB shares are trading on a 2019 P/B multiple of 1.5x or a 102% premium over the 0.7x 2019 P/B multiple that the sector is trading on. This is partly due to a widening as a result of weaker quality of earnings from peers and consistency on GTB’s part over the years. Our new price target of N48.5 implies a potential upside of 41% from current levels. As such, we retain our Outperform rating on the shares.
Q1 PBT up 8% y/y, driven by non-interest income & provisions
GTB’s Q1 2019 PBT was up 8% y/y to N57.0bn, driven by a 29% y/y growth in non-interest income and a -60% y/y decline in loan impairment charges. The main drivers of the stellar growth in non-interest income were a 24% y/y increase in net fees and commission income to N18.0bn and recoveries of N6.1bn (vs. zero recoveries in Q1 2018).
However, net trading gains (on investments) of N2.2bn (vs. trading losses of-N17.3m in Q1 2018) also contributed. Further down the P&L, PAT grew by 15% y/y, thanks to a positive result of N2.3bn in other comprehensive income (OCI) vs. N164m in Q1 2018.
Sequentially, PBT and PAT grew by 11% q/q and 8.0% q/q respectively due to a 17% q/q growth in pre-provision profits and an -80% y/y reduction in loa loss provisions. In contrast to the y/y trends, both revenue lines contributed to the q/q expansion in pre-provision profits. While non-interest income grew by 26% q/q, funding income was up by 12% q/q. Relative to our forecasts, PBT and PAT beat by 11% and 18% respectively.