GTB share price swing high after superior first half performance

GTB share price swing high after superior first half performance

Guaranty Trust Bank Plc stock maintained balance swings weeks after its first half result was released. The bank first half 2019 profit after tax settled at N99.133 billion.

Though half year dividends have been consistent, its year to date performance return remains negative at 20.72%.

At the first trading day in 2019, the bank stock opened at N34.45 and had reached N38.95 during the year before time rugged bearish moves set the equities market ablaze.

However, its recent month stock trend is reversing its negative return in the period. Now, the bank month to date loss has declined to 1.97% as the stock price closed the week at N27.35, its lowest price in August was N25.75 and highest N28.40.

The bank’s share opened at N27.90 at first trading day in August.

In the first half of 2019, GTBank maintained lead in terms of profitability, cost management and asset quality. Its key performance indicators closed green.

Analysts estimate shows that the bank result was superior among the peers in the banking sector, largely on the back of strong fundamentals.  GTB low funding cost and cost to income ratio give the bank strong competitive advantage in the sector.

Growth was however slowed, but was compensated by improved return. The bank gross earnings moved down 2% from N226.632 billion in the first half of 2018 to N221.978 billion.

In its forecast, Vetiva expects GTB Plc gross earnings to close financial year 2019 at N450.651 billion.

Also, the investment banker looks forward to a profit after tax of N219.87 billion in 2019.

From its incomes sources, the numbers show that interest income went down by 8% from N226.6 billion in the first half of 2018 to N221.6 billion in the first half of 2019.

This was followed by correspondent decline in interest expenses. Then, interest expenses went down significantly by 25.8% from N44 billion to N32.6 billion at the end of the first half 2019.

The management said that the Group was able to achieve that through customer acquisition drive under its retail strategy.

With the balance between the movement interest income and expenses sides, net performance of the bank’s interest earnings assets nosedived marginally, from N117.93 billion to N116.365 billion. Though, non-interest income came strong.

For selling its service and using tech platforms in delivering banking services among other things, GTB non-interest income surged by about 13% from N63.3 billion to N71.5 billion.

The uptick in fees and commissions pushed top line, as interest income went down, but for managed funding cost. In the first half, interest income accounted for 67% of the bank’s gross income while non-interest income accounted for about 33%.

GTB booked N2.2 billion as impairment charge on credit losses in the first half, as against N2 billion in the comparable period in 2018.

It  recorded flattish growth in operating expenses, with personnel cost unchanged at N18.6 billion, while other operating expenses moderated to N39.4 billion from N42 billion in first half 2018.

Overall, operating expense remained relatively flat, from N69.57 billion to N69.87 billion.

Meanwhile, primary cost driver during the period was Asset Management Corporation expense, which grew by 10% year-on-year from N14.12 billion to N15.49 billion.

Cost of funds fell below industry’s average, closed at 2.8% which was a good feat for the bank as it leads the retail end of the market. This, combine with similarly lower cost of income ratio, 32.2%, supported uptick recorded in its operating performance.

What this means is that GTB expended just 2.8% on every N100 it used to finance its interest earnings assets in the first half of 2019. Just as it cost the bank 32.2% on every N100 income generated in the period.

WSTC Securities said: We expect earnings to be driven by non-interest income in the second half of 2019, following the Group’s continued drive to expand its digital banking platform.

Analysts added that although the declining yields environment took its toll on GTB’s earning, we expect to see an improvement in yields in the second half.

The Securities firm said it also expect a relatively higher yield environment in the remaining part of the year.

Following the pressures in the external reserves, coupled with significant OMO maturities in coming months; analysts said they believe that a rebound in yields direction is very likely, which will support the Group’s income.

“We also expect to see an improvement in loan book, following the recent CBN’s directive that banks are mandated to maintain a minimum of 60% loan to deposit ratio. According to the management, the strategy is to grow the loan book via retail credit”, the firm noted.

Statement of Financial Position

GTB Plc grew total assets by 9.45% as it pitched at N3.559 trillion at the end of first half in 2019. It had opened the year at N3.287 trillion. Loan and advances was relatively flat, even with rising deposits collections.

In the first half, GTB capital adequacy hit 23.5% as against 16% for international banks. Its shareholders funds settled at N603 billion, having bumped up by 4.76% from N575.6 billion at the beginning of the year.

Analysts said that the strong CAR provides leeway to increase risk assets if GTB can find borrowers.

Loan to deposit ratio closed at 49.9%, this gives GTB ample opportunity to increase lending in the next 3-month.

Recently, the apex bank set 60% loan to deposit ratio (LDR). In the first half of 2019, GTB deposit was valued at N2.552 trillion, but its record shows loans and advance at N1.274 trillion carrying value.

The management recovery drive achieved result in the first half as NPLs reduced to N91.6 billion as against N99.4 billion.

This moderated the bank’s NPL ratio by 50 bps to 6.8% with declines across major sectors excluding general commerce, manufacturing, services and individuals.

Vetiva Capital projects 2019 NPL ratio of 5.8% for the counter, supported by the aforementioned recoveries from the telecoms sector which are scheduled to berth by September 2019.

“Overall, we expect profit after tax to print at N219.8 billion in financial year 2019 as against N183.8 billion, yielding a forward earning per share of N7.47, dividend per share of N3.41 and a revised value estimate of N51.49 compare to N50.20 earlier projected.

This offers a potential upside of 89.6% on current market price, thus we maintain our BUY recommendation on the stock, Vetiva stated.

Also, Coronation Merchant Bank observed low growth, high returns in GTB Performance in the first half. Analysts at the CRM said they have price target of N35 per share for the bank’s stock.

WSTC Securities settled for fair value of N45.17 for GTB as the analysts believe that the stock is undervalued relative to its current stock price of N28.

GTB share price swing high after superior first half performance




VIAJulius Alagbe, Economic/Financial Analyst
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