Guaranty Trust Bank Plc - Extraordinary FX Gains Mask Spike in Loan Loss


Thursday, August 18, 2016 9:21am /Vetiva Research

         Earnings beat estimates – PAT up 45% y/y

         Top line supported by Non-Interest Income

         Devaluation supports loan, deposit and asset growth

         Board of Directors declares N0.25 interim dividend

         TP revised upwards to N32.45 (Previous: N30.67)

Earnings beat consensus despite spike in loan loss

GUARANTY released H1’16 results posting strong top line growth with Gross Earnings up 37% y/y and 39% higher than our estimate. Although Interest Income was down 4% y/y, the impressive top line growth was driven by the exceptional Non-Interest Income of N98.8 billion vs.

H1’15: N38.0 billion and Vetiva estimate of N36.5 billion. The strong growth in Non-Interest Income was largely driven by the rise in FX revaluation gains – a performance similar to the trend observed across other banks in Q2 following the currency devaluation.

In spite of a strong 23% deposit growth, Interest Expense remained contained at N30.7 billion - 9% lower y/y and 3% better than our estimate. Surprisingly, GUARANTY recorded a historic loan loss provision of N37.5 billion (Q2:16 standalone of N34.2 billion), significantly ahead of our N7.4 billion forecast and prior year’s N6.0 billion with an estimated NPL ratio of 4.0%.

Whilst the higher provisioning is in line with the industry trend, we are taken aback given the magnitude of the change. Despite this spike, Operating Income rose 25% y/y to N140.4 billion - ahead of our N111.6 billion estimate.

Furthermore, with Operating Expense down 9% q/q, the expense line came in flat y/y - 4% better than our H1’16 estimate – translating to a CIR of 35%. Consequently, PBT rose 45% y/y to N91.4 billion (50% better than our N60.8 billion estimate). Overall, with an effective tax rate of 15% vs. our 18% estimate, PAT rose 45% y/y – 55% ahead of Vetiva and Consensus estimates.

TP revised to N32.45 (Previous: N30.67)
We have updated our model and revised our forecast accordingly to reflect the earnings miss, particularly in the loan loss provision and FX revaluation. Whilst we are impressed by the quantum of the revaluation gains recorded, we highlight the risk as this points to the bank’s currency risk exposure.

With the currency still under immense pressure in Q3’16, we expect Non-Interest Income to remain strong, albeit at a slower pace. However, we revise our loan loss provision estimate to N57.4 billion (Previous: N14.8 billion), pressured by the tough operating environment – translating to a CoR of 3.8%.

Though we expect the cost containment so far to persist through FY’16, we raise our Interest Expense to account for the rise in deposit.

Overall, we raise our TP to N32.45 (Previous: N30.67) translating to 2016 P/BV and P/E ratio of 5.8x and 1.5x respectively with a comfortable CAR of 18.25% (regulatory minimum: 15%).

Related News

1.       GUARANTY Declares N77.46 bn PAT in Q2 2016 Result Proposes 25kobo Interim Dividend SP N24.59k

2.      Guaranty Trust Bank Plc Updates Submission of Half Year Audited Financials to 15th Sept 2016

3.      Guaranty Trust Bank Plc to Submit Half Year Audited Financials Not Later Than 30th Sept, 2016

4.      Akindele Akintoye and Andrew Alli Retire from Guaranty Trust Bank Board

5.      GTBank Q1 2016 results - Significant Loss of N5.3bn  in Other Comprehensive Income Line

6.      GUARANTY Declares N25.61 bn PAT in Q1 2016 Result SP N16.16k

7.      Long Term Investors Five Picks You May Consider Today

8.     GUARANTY Market’s Bearish View Overdone Shares Rated Outperform

9.      Guaranty Q4 15 Conference Call Earnings Presentation The key takeaways

10.  GUARANTY Meets Full Year 2015 PBT Guidance of N120bn; Shares Rated Outperform

11.   GUARANTY Declares N99.44 bn PAT in 2015 Audited Result,(SP:N16.25k)

12.  GUARANTY: Low Cost Business Model Continues To Deliver Value

13.  GUARANTY: Subdued expectations for H2 2015

14.  Analyst Expects a Muted Reaction From the Market on GUARANTY Q3 15 Results

15.   GUARANTY Rise in OPEX Contributes to Weak PBT Analyst Rates Shares HOLD

16.  GUARANTY Grows PBT by 14.1 in Q3 15 Result SP N24.05k

17.    GUARANTY Appoints Haruna Musa as Executive Director

18.  GUARANTY Appoints Mr. Haruna Musa as an Executive Director

19.  GUARANTY Q2 2015 results healthy moving to Outperform 

Related News