GTBank Chief Tips on Shares Buyback as NSE Fails To Reward Performance
The Nigerian stock market has not been rewarding yet and some analysts are becoming apprehensive just as some investors. Key indicators continue to move southward while glimpse of hope for recovery seems not to be in the horizon – in the immediate.
All these are anchored on weak macroeconomics fueling negative sentiments. To some equity analysts, GTB stock remains a compelling idea for long term investors. Guaranty Trust Bank Plc.’s Group Managing Director/Chief Executive Officer, Segun Agbaje also thinks so. His refusal to yield to call to buyback the bank shares confirms this.
At second quarter earnings call, in reaction to a call to buyback GTBank shares, Agbaje said: “I think there are people who these dividends mean a lot to. It is part of their annuity income. They’ve been loyal to us, they’ve been there for us, and we must not make any shortsighted or short-term decisions.
“Even for me as CEO, I would have a really hard time buying back the shares because of all the people who’ve shown us loyalty from a retail base that have continued to give us business”, Agbaje added.
In its recent review, MarketForces observed that many companies with records of strong profitability are having their shares prices at discount up till the trading day on Friday.
Due to weak investors’ sentiment in the Nigeria’s stock market, Guaranty Trust Bank Plc (GTBank) share price has been watered down by 22.32% from the beginning of the year to date.
Analysts say inability to price uncertainty has weakened investors taste and interest in the Nigerian economy and by extension its corporate entities.
MarketForces recalled that GTbank share was opened for trading at N34.45 per share at the beginning of the financial year 2019 reached its peak price at N38.95 and the lowest price in the year has been N25.75.
On Friday, it closed the week at N26.80 per share. Stock market currently value GTB at N788.755 billion on 29.431 billion shares outstanding. Though sterling year on year results have been sustained, analysts think the market is not rewarding the management for great performance.
Abayomi Obabolujo, CEO Stock Watch said he has observed that bearish trend affect stocks base on their floats.
According to Obabolujo, when equity market becomes bad generally, we now begin to look at characteristic of individual stocks as the rate at which stock would navigate through would be a function of who the managers are.
“What will determine the performance of equity in such a market is essentially the shareholding structure”, he said.
With the third quarter earnings season coming, some analysts said they have adjusted estimates on GTB due to its performance record.
Vetiva analysts think that GTB is on track to another solid year of profitability. Some analysts estimates show that the bank is expected to again reel out strong numbers, coming from improve fundamentals.
Vetiva analysts estimated that gross earnings for Q3 would come at N112.663 billion.
Analysts think that in decade and a half, GTB returns on assets (ROAs) and on equity (ROEs) are printing at almost record levels, looking at trailing.
Yet, the rating in the stock market is pretty much at all-time lows on a PE basis. On price-to-book basis, GTB was said to be close to the trough levels printed in 2016.
“So the market obviously isn’t rewarding you for the great performance you’ve achieved”, an analyst that played share buyback chess told Agbaje at Q2 2019 earnings call.
Speaking on the share buyback, Agbaje said: “I think you’re absolutely correct, but there are always other considerations.
I think buying back our shares at this point would make the most sense, just like you said, to the ROEs. But you know, we’re also a Nigerian institution that has a large retail customer shareholder base, maybe about 40%, 50%.
“I have to be honest with you, irrespective of what the stock market says, we have to be responsible social citizens.
“I think there are people who these dividends mean a lot to. It is part of their annuity income. They’ve been loyal to us, they’ve been there for us, and we must not make any shortsighted or short-term decisions.
“So even for me as CEO, I would have a really hard time buying back the shares because of all the people who’ve shown us loyalty from a retail base that have continued to give us business.
“Then, while the numerical makes sense, I think sometimes as an organization grows, you owe a little more than just what the numerical are showing you”, Agbaje said.
Agbaje said: “I think that our share price is suffering like a lot of people’s because there’s a bit of pessimism about the country’s macros.
“I’ve been around when we went to N12 or N13. As long as we stay focused, we continue to deliver the returns that we are showing that we can, and then eventually, we will find our right level”.
Vetiva analysts estimated that GTB interest income would grow marginally to ₦75.0 billion in Q3 compare to ₦74.5 billion Q2, driven by a single-digit quarter on quarter loan growth forecast.
However, the analysts said they expect a slight increase in non-interest income to ₦37.7 billion as against ₦37.1 billion in Q2- a result of further gains from fees and commissions.
Gross earnings has been estimated to be flattish quarter on quarter at ₦112.7 billion in Q3 compare to ₦111.6 billion in Q2 2019.
Vetiva Research stated that in line with the bank’s continuous drive for efficiency, it expects operating expenses to moderate 1% to ₦34.7 billion, while provisions are forecasted to be lower at ₦1.3 billion compare to ₦1.5 billion.
The analysts reckoned that profitability-wise, they expect 8% rise in pretax profit, mainly driven by an expected recovery which has been estimated at ₦5 billion from the telecoms sector.
Analysts project a full year 2019 non-performing loans (NPL) ratio of 5.8% for the counter, supported by the aforementioned recoveries from the telecoms sector which was scheduled to berth by September 2019.
GTB profit after tax is estimated to come in at ₦54.9 billion, giving an expected Q3 EPS of ₦1.87. For 9 months 2019, EPS is forecasted at ₦5.24.