EUR 4.00 For Business Accounts Only

Guaranty Trust Bank Plc - Slower but persistent earnings growth in near term

• At its full year 2018 analysts conference call and our follow up engagement, management guided to a 10% growth in loans over 2019, with focus on oil & gas sector, retail clients and manufacturing sector. Further, they guided that submissions have been made to unlock funds from the differentiated cash reserve ratio introduced by the MPC and awaiting approvals by the apex bank. Leveraging its retail presence, management expects 12% growth in deposit, 40% cost to income ratio, 9% net interest margin (NIM), and cost of risk and NPL ratio (coverage ratio above 100%) of below 1% and 5% respectively. Overall, management guided to PBT growth of 2% to N220 billion (8% YoY in FY 18).
• We maintain our STRONG BUY rating on GUARANTY with a revised FVE of N49.66/share (from N52.60/share) due to i) expectation of slower growth in net loan book forecast by 5.2% YoY (previous: 6.4% YoY); ii) upward revision of cost of risk to 0.5% (previously: 0.2%) implying loan loss provision of N6.6 billion (+35% YoY) with management putting on hold the reversal of excess provisions on 9Mobile due to concerns on the ability of management to improve performance going forward; iii) increase in forecast cost to income ratio to 36.2% (previous: 35.7%); and iv) 7bps downward revision of forecast NIM following expectation of sticky funding costs and slower expansion in assets yield. We align our deposit growth with management guidance, as we expect the Quick Credit Scheme to drive increased transfer of salary accounts to GUARANTY. Accordingly, we forecast EPS growth of 4% YoY to N6.53 (previously: N7.15). GUARANTY trades at a FY 19E P/B of 2.1x, at a premium to ZENITH of 1.4x, which is justified given its strong and sustainable ROE. At current price, our expected dividend of N2.82 over FY 19E translates to a dividend yield of 8% (Zenith: 13.6%).