Wednesday, August 15, 2018 02:20PM / FBNQuest Capital
Rolling over to 2019E; 6% increase to our price target
Consolidating on its Q1 2018 results, GT Bank’s (GTB) Q2 2018 earnings surprised positively. As such, we expect the bank to meet or slightly surpass management’s 2018E PBT guidance of N205bn. Although management admitted that its 10% loan growth guidance for 2018 is likely to be challenging, it sees a stronger H2 2018, driven by an expansion in credit to the oil and gas upstream segment. In terms of earnings, management expects the strong performance in non-interest income to persist through H2 2018, driven by the bank’s long position in fx (c.US$1bn) and growing customer base.
A positive outlook on loan loss provisioning due to potential recoveries also bodes well for earnings in H2 2018. We have made modest changes to our 2018-19E earnings forecasts. Our 2018E PBT forecast of N205.1bn is in line with management’s guidance and implies a 2018 ROAE of 29%. Notwithstanding, our new price target of N53.4 is around 6% higher than our previous price target because we have rolled over our valuation to 2019E.
Having sold off by around -12.9% in the last three months (vs. -13.3% for the ASI), our new price target shows a potential upside of c.40% from current levels. As such, we upgrade our recommendation on the shares to Outperform from Neutral.
Q2 PBT up 12% y/y, driven by reduction in provisions and strong non-interest income growth
GT Bank’s Q2 2018 PBT grew by 12% y/y to 57.0bn. Although pre-provision profit only grew by 4% y/y, a significant (-90% y/y) reduction in loan loss provisions proved significant and was the major driver behind the double digit PBT growth. Thanks to a lower effective tax rate of 10.7% compared with 16.8% in Q2 2017, PAT advanced by 16% y/y. Further up the P&L, noninterest income expanded by 32% y/y, mainly driven by trading gains on fx and other financial instruments. The growth on this revenue line completely offset the -8% y/y reduction in funding income which reflected the well documented yield compression in the fixed income market.
Sequentially, the earnings growth trends mirrored the y/y data. PBT and PAT grew by 8% q/q and 10% q/q. Again, a decline in loan loss provisions and growth in noninterest income were the key drivers. Compared with our forecasts, PBT and PAT beat by 12% and 15% respectively due to positive surprises in noninterest income and loan loss provisions.