GUARANTY TRUST BANK PLC
Earnings beat – spurred by loan loss moderation
GUARANTY released its H1’17 results, recording strong growth across key line items. Beating already impressive Q1’17 run rate, H1’17 performance came in better than expected with top and bottom line beating our estimates by 7% and 22% respectively. Particularly, Gross Earnings came in relatively flat (2% higher y/y) as strong Interest Income growth (up 51% y/y) outweighed the 53% moderation in Non-Interest Income. Non-Interest Income still came in 10% better than our estimate at ₦46.6 billion. In line with the general trend observed across the industry, Interest Income rose markedly y/y (albeit down 13% q/q) as the strong interest rate environment continues to support top line despite conservative loan growth (H1’17: -6%). Although Interest Expense also rose y/y, the rise was more contained – coming just in line with our estimate.
More importantly, loan loss provision (₦7.2 billion) came in better than our ₦12.8 billion estimate following huge write offs in prior year (FY’16: ₦65.3 billion – higher than the cumulative provision made over the previous 5 years). Operating Expense however continued its upward trend, rising 24% y/y to ₦67.8 billion (Vetiva estimate: ₦63.8 billion). Overall, PAT rose to ₦83.7 billion (H1’16 restated: ₦71.8 billion) – beating our ₦68.8 billion estimate.
We have updated our model to reflect the deviation across the key line items. Notably, with loan portfolio still sticky in H1’17 (down 6%), we cut our credit growth forecast to flat (Previous: 8%). Despite the cut, we revise our Interest Income forecast higher to ₦332 billion (Previous: ₦314 billion) to reflect the strong interest rate environment. We also raised our Non-Interest Income estimate marginally higher. Furthermore, adjusting for the lower than expected H1’17 provision, we revise our loan loss expectation to ₦20 billion (Previous: ₦26 billion). Overall, we raise our FY’17 PAT forecast to ₦153 billion (Previous: ₦138 billion) – translating to an EPS of ₦5.20. GUARANTY trades at a premium to industry peers with P/B and P/E ratios of 2.3x and 8.7x vs. Tier I average of 1.1x and 5.6x respectively.
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