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GUARANTY TRUST BANK PLC FY'17 - PAT beats despite flat top line as efficiency sets bank apart

GUARANTY released its FY’17 results, beating prior years’ impressive performance to post another record year profit. With most banks taking a cautious loan growth stance in 2017 amidst heightened risk environment, we had estimated a 5% moderation in loan portfolio for the period. However, notwithstanding a more significant 9% moderation in loan book, Interest Income came in much in line with our estimate as a strong interest rate environment supported top line. We recall that following the currency devaluation in 2016, GUARANTY recorded huge revaluation gains which led to over 100% rise in Non-Interest Income, a trend we had expected to normalize going forward. Consequently, Gross Earnings came in flat y/y at ₦419 billion as the impact of the strong Interest Income growth was offset by normalizing Non-Interest Income. Despite reporting a flat y/y top line performance, bottom line rose 29% y/y to ₦170 billion, ahead of our ₦160 billion forecast.

We maintain our cautious stance on NPL formation going forward and forecast a loan loss provision of ₦18.1 billion for FY’18. We note that ahead of the implementation of IFRS 9, management disclosed that the adoption would have impacted the bank’s equity by about ₦83 billion, shaving c.300bps off its CAR (FY’17: 25.50%).

Overall, we forecast a PAT of ₦177 billion for the year – translating to an EPS of ₦6.01. GUARANTY trades at a premium to industry peers with P/B and P/E ratios of 2.0x and 7.9x vs. Tier I average of 1.1x and 5.8x respectively.