EUR 4.00 For Business Accounts Only

Initial View - GTB Plc FY 2018 - Weak performance across income lines in Q4 18

• Guaranty Trust Bank (GTB) full-year 2018 earnings expanded by 8.3% YoY with EPS printing at N6.27 but slightly lower than our estimate of N6.75 given loan-loss provision which tracked higher than we expected as the bank booked additional provision of N3.1 billion in the fourth quarter. Elsewhere, Net Interest Margin (NIMs) moderated in the period to 8.2% (-91bps YoY) on the back of lower asset yield on its trading book even as funding cost ticked higher to 3.4% (+10bps YoY) with pressure stemming from deposit. Though NPL ratio declined to 7.3% (-40bps YoY), the sticky moderation is largely hinged on the decline in its gross loan book to N1.4 trillion (-N157.2 billion).
• In terms of positive, we reckon that the strong Non-Interest Revenue (NIR) and a sizable decline in impairment provided a strong pillar of support to GTB’s FY 18 earnings. On NIR, the bank saw increase across lines: net fee income (+24% YoY to N50.5 billion), trading income (+117% YoY to N24.6 billion) and other operating income (+34% YoY to N50.8 billion). On loan loss provisioning, the absence of specific impairment, compared to the prior year of N31.8 billion provided much of the softer provisioning during the year. The bank declared a final dividend of N2.45 which in addition to interim of N0.30 brings total payout to N2.75. The final dividend translates to a dividend yield of 7.2% on current pricing.
• Weak performance across income lines in Q4 18. Contrary to the support from higher NIR and lower provisioning both of which supported the full year numbers, Q4 standalone came in with a lot of concerns for us with EPS declining 6.3% QoQ. The major pressure stemmed from a moderate decline in net interest income, double-digit drag in NIR, higher loan loss provisions and a much higher effective tax rate over the quarter. On NIM, despite moderation in funding cost over the quarter (-70bps QoQ and 2.8%) with interest expense declining 23.2% QoQ, the softer asset yield (-33 bps QoQ to 10.5%) necessitated a mild decline in net interest income by 2% QoQ to N51.8 billion, even with an expansion in NIM by 66bps QoQ to 10.6%. For Interest income, the decline emanated from lower interest income on loans to customers (-4.2% QoQ to N44.4 billion) and investment securities (-20.6% QoQ to N19.4 billion).
• The stock currently trades at a current P/B of 1.9x which is at a premium to peers of 0.8x, which is fair in the light of GTB’s best-in-class ROAE relative to the rest of the sector. Our last communicated FVE on GTB is N52.60 translates to a STRONG BUY rating on the stock. We will revisit our numbers after further analysis and discussion with management.