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GUARANTY TRUST BANK PLC 9M'18 - Another decent quarter sees earnings track estimates

                                                               

Another decent quarter sees earnings track estimates                                                                 

GUARANTY released its 9M’18 results, posting another set of impressive numbers. Although Q3’18 standalone performance was relatively weaker q/q, bottom line for the 9M period still came in impressive, up 13% y/y and 2% better than our estimate. Whilst top line came in mildly below our estimate - ₦337 billion vs. Vetiva’s ₦340 billion estimate – lower than expected expenses and provisions kept bottom line in check. We note that the bank’s risk appetite remained low within the quarter as loan book moderated another 2% - taking ytd loan growth to -12%. Consequently, Operating Income was up 11% y/y to ₦266 billion – marginally lower than our ₦268 billion estimate. However, with Operating Expense coming just in line with our estimate amidst a lower than expected effectively tax rate, PAT rose 13% y/y to ₦142 billion – 2% better than our ₦140 billion estimate.                                                                            

We are quite impressed with the persistence of GUARANTY’s earnings. The bank continues to set the benchmark within the banking sector with industry leading profitability. We note that with the current earnings run rate, GUARANTY is on-track to set another record year of profitability. Whilst we cut our Interest Income forecast lower to ₦317 billion (Previous: ₦326 billion) as we expect the bank to stay cautious, we raise our Non-Interest estimate marginally higher to reflect the miss from 9M’18. Similarly, we revise our loan loss provision downward (albeit still faster than 9M run-rate) to reflect improving asset quality. We however maintain our Operating Expense estimate and retain our tax assumption for the full year. Overall, we estimate a PAT of ₦184 billion for FY’18 – translating to y/y growth of 8%. Despite being the most priced banking name in the Nigerian banking sector, we believe that the bank remains significantly undervalued – particularly when compared to regional peers. Following our model update, we revise our target price on GUARANTY to ₦51.53. With our expected ROA and ROE of 5.4% and 30.3% respectively for FY’18 and a market pricing of ₦36.80, we maintain our BUY rating on GUARANTY.                                                                            

Guaranty Trust Bank PLC (GUARANTY) is one of the largest bank in Nigeria. The bank focuses on corporate banking with presence in Nigeria, Gambia, Sierra Leone, Ghana, UK, Liberia, Cote D’Ivoire, Kenya, Uganda and Rwanda. The bank has its primary listing on the Nigerian Stock Exchange and secondary listing as GDRs on the London Stock Exchange.