Gtbank: Strong fundamentals drive BUY rating for the stock
Guaranty Trust Bank Plc ( Gtbank) is an attractive stock that will continue to reappear in the basket of many investment managers who are constantly seeking higher returns.
Despite the impact of Covid-19 lockdown on most listed companies’ scorecards, Gtbank still gets BUY rating from equity research analysts who consider it highly undervalued, “but with strong fundamentals”.
Recently, Gtbank released its audited financial results for the half year (H1) ended June 30, 2020 to the Nigerian and London Stock Exchanges. The results still reflects Gtbank’s leading position as one of the best managed financial institutions in Africa.
The H1’20 scorecard
Snapshot of the group’s operating results for the H1’20 period shows gross earnings increased by 1.47 percent to N225.138billion as against N221.869billion in H1’19.
The bank’s loan book grew by 8.1percent from N1.502trillion recorded as at December 2019 to N1.624trillion in June 2020 and customer deposits increased by 18.5percent to N3.001trillion from N2.533trillion in December 2019.
Profit before tax (PBT) closed at N109.7billion, representing a decrease of 5.2percent over N115.8billion recorded in the corresponding period of 2019. Gtbank’s profit for the H1’ 20 period stood at N94.271billion, down by 4.9 percent from N99.133billion recorded in H1’19.
In terms of asset quality, nonperforming loan ( NPL) ratio and Cost of Risk (COR) closed at 6.8percent and 0.4percent in June 2020 from 6.5percent and 0.3percent in December 2019 respectively.
Overall, asset quality remains stable with adequate coverage of 118.1percent, while Capital remains strong with capital adequacy ratio (CAR) of 22.9percent. On the backdrop of this result, Return on Equity ( ROAE) and Return on Assets ( ROAA) stood at 26.8percent and 4.6percent respectively. Overall, asset quality remains stable with adequate coverage of 118.1percent, while Capital remains strong with CAR of 22.9percent. On the backdrop of this result, Return on Equity ( ROAE) and Return on Assets (ROAA) stood at 26.8percent and 4.6percent respectively.
Maintains dividend payout amid mixed earnings
Before now, stock investors are advised to take position in high quality dividend paying stocks like Gtbank. For the H1’20 period under review, directors of the bank proposed the payment of an interim dividend in the sum of 30 kobo per ordinary share on the issued capital of 29,431,179,224 ordinary shares of 50 kobo each. The interim dividend valued at N8.83billion is payable to shareholders on the register of shareholding at the closure date. The bank closed the half year ended June 2020 with total assets of N4.511trillion and Shareholders’ Funds of N720.9billion.
Management comments on H1 results
“These are undoubtedly tough and trying times for people, businesses and economies the world over. Our financial performance in the first half of the year reflects the quality of our past decisions which have broadened our earnings and strategically positioned us to thrive, thus far, through the current global health and economic crises”, said Segun Agbaje, Chief Executive Officer of Guaranty Trust Bank Plc. “Underpinning this financial
www.businessday.ng performance is our commitment to being there for our customers and the communities we serve, and over the past six months we have lent the full weight of our franchise to safeguarding lives and livelihoods of our staff and customers by leading from the front in the fight to curtail the Covid-19 outbreak and offering grace periods on loans to our small business customers,” Agbaje said.
“Going forward, our focus is not just to survive this pandemic, but to thrive beyond it. That is why we are going ahead with our plans to reimagine how we create value for all our stakeholders. We know that making financial services work for customers goes beyond banking, and in line with our long-term strategy, we will seek to create and drive innovative financial solutions that go beyond banking,” he further stated.
Restructuring into a Holding Company
Ahead of the completion of its CEO’S regulatory 10-year term, Gtbank has gone far into its arrangement to have a Holding Company (Holdco) structure by first-quarter (Q1) of 2021.
Gtbank is working to secure all regulatory approvals from the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC) and in other regions to achieve the Holdco structure.
Operationally, Gtbank will split it into three when the Holdco structure is achieved. This will lead to having Guaranty Trust Bank Nigeria; Guaranty Trust Bank East Africa, almost operating as a region and Guaranty Trust Bank West Africa operating as a region.
The Holdco wi l l have other business units like Asset Management, a Pension Fund Administrator ( PFA) and a payment company. Hopefully this week, Gtbank would put in its application for final approval for the payment company, according to Agbaje.
“In terms of the work we are doing on it, the operational model for the Holdco is set. You will have the centre, which is the controlling or holding company and you have a couple of business units. Operationally, what you would see is that in terms of Holdco, we are going to do a one for one exchange, which means that the shares of Gtbank would move up to the Holdco”, the Managing Director had said.
Research analysts’ comments Vetiva equity research analysts in their September 4 note maintained BUY rating for Gtbank with set Target Price (TP) of N41.79.
“It was generally expected that second-quarter (Q2) performance would be affected by the pandemicinduced lockdown. GUARANTY’S Q2 performance was a mixed bag, with the bank recording flat Interest Income quarteron-quarter (q/q) whilst Interest Expense grew 5percent q/q.
“Meanwhile, provisions grew in excess of 300percent q/q to N5.5 billion, eclipsing the whole of 2019 provisions (N4.9 billion) in a single quarter. Looking forward and based on previous years’ pattern, we expect provision growth to moderate in third-quarter (Q3) before another uptick in the final quarter”, Vetiva research analysts stated.
Also, research analysts at Lagos-based United Capital said, “The future looks interesting for the Gtbank following its recent guidance to restructure into a Holdco”.
“In terms of market valuation, Price-to-earnings (PE) and priceto-book (PB) ratios came in at 4.1x and 1.0x, which is well below 3year historical averages of 5.8x and 1.7x, presenting an attractive entry point at current price ahead of FY-2020 earnings and dividend declaration.
“We expect the Bank to maintain a dividend per share ( DPS) of N2.5/ share. Our target price (TP) revision to N31.9 from the previous N41.7 reflects increased country risk premium due to the currency market concerns and the coronavirus pandemic. Compare to current price of N24.3 this continues to portent a 31.3percent upside,” United Capital research analysts further said in their September 9 note.
“We retain our BUY rating on GUARANTY at a target price of N31.9/ share. This is on the basis of the historical operational efficiency, balance sheet optimisation, sound risk management strategy, robust profitability and dividend consistent.
“We expect GUARANTY to sustain its solid net interest margin (NIM) and cost of funds (COF) positioning due its huge and growing retail customer deposit base”, United Capital said.
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We expect GUARANTY to sustain its solid net interest margin (NIM) and cost of funds (COF) positioning due its huge and growing retail customer deposit base ‘
Shares trading information
At N27 the stock closed on Monday September 28, Gtbank’s market cap is in excess of N794.64billion on shares outstanding of 29,431,179,224 units. The stock had reached a 52- week high of N34.40kobo and a corresponding period low of N16.70. This year, the stock has yielded negative return of -9.1percent year-to-date (ytd).