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Initial View - GTB Plc FY 19 - Lower funding cost drives earnings higher

• GTB Plc recently released its audited FY 2019 results with PBT and PAT expanding by 7.5% YoY and 6.6% YoY respectively. Key driver for the growth in earnings was a significant moderation in funding cost (-23.3% YoY). In addition, expansion in Non-Interest Revenue (+8.2% YoY) also helped to support earnings growth. GTB’s FY 19 PAT of N196.9 billion came in slightly higher compared to our estimate of N192.1 billion, representing a 2% deviation to our estimates. The deviation largely mirrored a better outing on improved funding cost. That said, GTB declared a final dividend of N2.50/share (final dividend in 2018: N2.45) which translates to a dividend yield of ~11% based on last closing price.
• As mentioned earlier, funding cost was lower by 23.5% YoY with WACF contracting by 93 bps. The decline in funding cost largely reflected lower interest expense on customer deposits (-22% YoY). Similarly, interest income also declined, albeit at a slower pace (-3.5% YoY) relative to funding cost. Despite the growth in loan book and investment securities, interest earnings on loans and investment securities moderated by 5.0% and 1.8% respectively. Average yield on assets was down by 104 bps YoY to 10.3%. Overall, NII advanced higher by 4% YoY while NIM contracted by 17bps due to the faster decline in asset yield.
• Elsewhere, GTB recorded a growth of 8.2% YoY in Non-Interest revenue against the backdrop of better electronic banking fees (+63.4% YoY), credit related fees (+35.4% YoY), commission on FX deals (+33% YoY), and recoveries (+80% YoY).  On asset quality, NPL ratio improved to 6.5% (FY 18: 7.3%) with Cost of Risk moderating by 7 bps YoY to 0.3%. Consequently, GTB reported loan loss provisioning of N4.8 billion (-1.9% YoY). On other fronts, Cost to Income ratio improved by 86 bps YoY over 2019 (FY 2018: 36.5%) following a faster growth in operating income (+8.2% YoY).
• Streamlining to the quarterly numbers, GTB reported similar performance with the FY trend. PBT and PAT printed higher by 10.8% QoQ and 3.7% QoQ respectively. The growth was reflective of improved funding cost and sturdy expansion in NIR. For funding cost, lower interest expense on deposits was the major driver. Elsewhere, higher FX trading gains (gain of N8 billion in Q4 vs trading loss of N1.3 billion in Q3) and FX revaluation gain (+77.4% QoQ) supported total NIR.
• On margins, NIMs contracted by 29 bps QoQ following a faster decline in asset yield (-116 bps). Interest income over the quarter was pressured due to the lower interest rate environment. Interest earnings on loans to customers and interest on placements were lower by 6.6% QoQ and 79.5% QoQ respectively.
• The stock currently trades at a current P/B of 1.07x which is at a discount to its one-year average of 1.51x. Our last communicated FVE on GUARANTY is N49.6 which translates to a BUY rating on the stock. We will revisit our numbers after further discussion with management.

More analysis to follow.