Monday, September 20,
2021 / 02:57 PM / by FBNQuest Research / Header Image Credit: GTBank
6% upward revision to our price target following valuation rollover to FY '22f
GTCO's management has maintained its FY '21 ROAE guidance of 25%, despite weaker-than-expected H1 '21 results which translate to an annualised ROAE of c.20%. Management has a more optimistic outlook for H2 '21, with earnings expected to benefit from stronger lending growth, improved loan recoveries, and income from swap positions. Relative to our forecasts, the bank's Q2 PBT and PAT missed by between 26% and 28% mainly due to a negative surprise in funding income.
As a result, despite management's optimism, we would like to see evidence of these improvements, moving forward. Consequently, we have made downward adjustments of c.-12% on average to our FY '21-22f funding income forecasts. As such, we expect a -6% y/y decrease in FY '21 PBT to c.NGN224bn, or c.8% below guidance of NGN243bn, implying an FY '21 ROAE of 20%. We have also cut our EPS forecasts by around 12% on average over the FY '21-22f period. Despite the downward revision to our earnings forecasts, our new price target of NGN41.8 is c.6% higher because we have rolled forward our DDM valuation to FY '22f.
On a relative basis, GTCO's is trading on a '21f P/B multiple of 0.9x for 22.1% ROAE in '22f. These compare with an average multiple of 0.6x for 14.9% FY '22 ROAE that our universe of banks is trading on. Year-to-date, the shares have shed -13.4% vs the -3.3% return on the NSE ASI. Despite the cut, our new price target implies a potential upside of 49% from current levels. As such, we reiterate our Outperform rating.
Weak Q2 '21 results; PAT down -23% y/y
GTCO's Q2 '21 PBT declined -24% y/y to NGN39.4bn because of a -9% y/y reduction in pre-provision profit, and a 14% y/y rise in opex. In terms of revenue drivers, the biggest drag on revenue was a -14% y/y reduction in funding income. Non-interest income came in flat y/y. Below the tax line, PAT also declined by -23% y/y. Total comprehensive income fell by a wider margin of -59% y/y because of a negative result of c.NGN8.7bn in other comprehensive income (vs. NGN15.7bn Q2 '20), following fair value adjustments to debt securities passed through OCI..
Sequentially, PBT, PAT and Total comprehensive income declined by 27% q/q, 26% q/q, and 35% q/q respectively due to a 13% q/q reduction in non-interest income, and sharp increases in loan loss provisions and opex.