EUR 56.22 For Business Accounts Only

GTB PLC 9M'16 - Earnings trump estimates

• GUARANTY released 9M’16 results, posting strong top line growth with Gross Earnings up 44% y/y and 15% higher than our estimate. Although Interest Income was up by a mild 5% y/y, we highlight that the income line was up significantly by 34% q/q – supported by a jump in loan portfolio on the back of continued currency weakness. Also, following the spike in Non-Interest Income in Q2’16 (largely due to FX translation gains), the income line moderated 42% q/q to ₦46.2 billion (although still ahead of the 2-year quarterly average of ₦34.3 billion). With loan portfolio up 5% in Q3 standalone and a cumulative 20% ytd, we expect the increased credit portfolio to further support top line Q4’16.
• We have updated our model and revised our forecast accordingly to reflect the earnings surprise. Amidst the sector wide call for capital buffers, GUARANTY remains adequately capitalized and liquid with Capital Adequacy Ratio (CAR) and Liquidity Ratio (L.R) of 18.1% and 37.6% respectively. Whilst the uptick in impairment remains worrisome (NPL ratio: 4.13%), we expect the strong earnings growth and efficiency to continue to cushion the impact on bottom line. We maintain our Interest Expense forecast at N68.5 billion and raise our Operating Expense estimate to ₦109.4 billion (previous: ₦100.7 billion) in line with recent trend. With the currency still under pressure, we except Non-Interest Income to remain strong, albeit at a moderate slower pace. That said, we also anticipate a sizeable cut back in E-business income as banks’ suspend the use of Naira cards for foreign currency transactions (E-business income accounts for 46% of fee and commission income ytd). Overall, we raise our TP to ₦32.76 (Previous: ₦31.50) translating to 2016 P/BV and P/E ratio of 5.0x and 1.4x respectively.