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GUARANTY TRUST BANK PLC Q1'17 - On track for another record performance, PAT up 62% y/y

​Maintaining last year’s impressive performance, GUARANTY released Q1’17 results, posting strong y/y growth across major line items as earnings came in significantly better than expected. Whilst we note that management had been quite optimistic with its earnings guidelines, forecasting a ₦168 billion PBT for FY’17 (FY’16A: ₦165 billion), we were more conservative with our forecast given that FY’16 earnings were largely supported by the exceptional FX revaluation gains following the currency devaluation. Despite reporting a mild y/y and lower than expected rise in Non-Interest Income (₦20 billion vs. Vetiva estimate of ₦23 billion), Gross Earnings rose 39% y/y and 11% ahead of our estimate to ₦105 billion - supported by an impressive 51% y/y rise in Interest Income to ₦84 billion (21% ahead of our ₦70 billion estimate). We note that the strong Interest Income growth was similar to the trend observed across other banking names in Q1’17. Particularly, we highlight the significant jump in income from Investment Securities to ₦22.5 billion vs. Q1’16: ₦8.8 billion. We believe this must have been driven by income from high-teens tax-free returns from treasury bills and expect this to support earnings across other banks.

Following the notable deterioration in asset quality in 2016, we had anticipated a ₦10.2 billion loan loss provision for Q1’17 (2016 quarterly average: ₦16.3 billion). However, with the provision line coming in at a modest ₦3.8 billion, coupled with contained Interest and Operating Expenses, PAT rose 62% y/y to ₦41.5 billion – beating our ₦28.0 billion estimate.

With loan portfolio still sticky in Q1’17, we cut our credit growth forecast downwards to 8% (Previous: 10%). Despite the cut, we revise our Interest Income forecast higher to ₦314 billion (Previous: ₦278 billion) to reflect the stronger yield on asset. Consequently, our Gross Earnings estimate is raised higher to ₦394 billion (Previous: ₦375 billion) despite cutting our Non-Interest Income forecast to ₦85 billion (Previous: ₦97 billion). Furthermore, adjusting for the lower than expected Q1’17 provision, we revise our loan loss expectation to ₦26 billion (Previous: ₦41 billion). Overall, we raise our FY’17 PAT forecast to ₦138 billion (Previous: ₦112 billion) – translating to an EPS of ₦4.68.