GTCO Plc FY 2021 - Regulatory Requirements Bite Hard
- GTCO Plc released the audited FY 2021 results revealing 1.6% and 7.0% YoY declines in Gross Earnings and Profit Before Tax (PBT). The declines resulted mostly from a steep decline in Interest Income (-11.3% YoY to ₦266.9bn).
- Net Interest Income fell 13.0% YoY to ₦220.6bn as the decline in Interest Expense was insufficient to plug the slump in Interest Income. Specifically, Interest Income declined 11.3% YoY to ₦266.9bn on the back of a 38.7% YoY fall in income from investment securities. We suspect this was dragged by the bank’s CBN special bills holdings of ₦560.8bn (49.8% of investment securities and 10.3% of total assets). These bills are an offshoot of the CRR debits from the CBN and are currently earning about 0.5%, which pales when compared to market rates, hurting Interest Income in the process. Interest Income from loans appreciated 5.1% in response to an 8.4% rise in Bank’s loan book to ₦1.8tn.
- On the other hand, a decline in interest paid on borrowed funds (-53.6% YoY) eased overall Interest Expense by 1.7% to ₦46.3bn. However, Interest on Deposit inched higher by 2.4% to ₦41.6bn in line with a decline in the proportion of low-cost CASA deposits (85.7% Vs 88.9% in 2020). Consequently, Cost of Funds tapered 20bps to 1.1% due to a tilt in borrowings to more of on-lending facilities.
- Asset quality improved slightly with NPL ratio down to 6.04% from 6.39% in 2021 and we also note that the bank booked lower provisions for loan impairments despite a 10% expansion in the loan book. This saw Cost of Risk fall by 70bps to 0.5%. Operating Expenses increased swiftly by 10.1% to ₦162.3bn chiefly on NDIC premiums and AMCON charges. Hence, Cost-to-Income ratio worsened to 5ppts to 41.4%, although the lender remained most efficient among its peers cost-wise.
- We project a FVE of ₦33.22 for GTCO as the bank remained poised for increased Non-Interest Revenue even as regulatory requirements cast a shadow over Interest Income growth. This represents a 27% upside from its current close price of ₦26.15 and with the declared dividend of ₦2.7 per share offering 10.3% yield, we rate GTCO a STRONG BUY.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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