GTCO Spikes as Analysts Project Solid Upside
The share price of Guaranty Trust Holding Company (Ticker: GTCO) gained 11% due to a huge demand volume in the local bourse last week. Buying interest that was seen in the bank’s stock rerate its market valuation while the banking index popped.
The holding company with a strong footprint in the local market has seen its efforts to drive growth impacted by weakening macroeconomic conditions. In the stock market, GTCO has given up its position as the most valued Nigerian bank.
GTCO’s share price has been relatively unstable though the bank maintains a stable dividend policy. In terms of earnings performance, the Tier-1 lender ended the third quarter with marginal profit growth – below the industry’s average.
In an equity report, PAC Capital’s guided buy rating on GTCO, puts the target price of the stock at ₦27.84, representing an increase of 46.53% from the reference price of ₦19.00. However, as of Friday’s close, the bank share inched higher to N19.45 while market valuation inched to N572.436 billion on 29.431 billion outstanding shares.
In its 9-month financial statement, GTCO reported double-digit growth in the top line, though analysts said the sound of the earnings beat was not loud enough for the orange brand. In the period, GTCO gross earnings spiked 14.38% to ₦364.31 billion from ₦318.51 billion in the comparable period in 2021.
In an equity note, PAC Capital said the growth was driven by improvement recorded in interest income and non-interest income during the period. A look at its financial statement shows that the bank’s interest income increased significantly by 19.20% to ₦232.49 billion from ₦195.04 billion in a 9-month period result in 2021.
Analysts stated that this was driven by strong growth in average volumes of earning assets and the recent increase in interest rate. It is noted that the non-interest income of the bank improved by 6.76% to ₦131.81 billion as against ₦123.47 billion in 9m-2021 as a result of significant growth in fee & commission income and foreign exchange trading gain.
Meanwhile, the total interest expense rose by 33.37% to ₦42.80 billion from ₦32.09 billion in the comparable period which PAC Capital thinks might have been triggered by the significant increase in the cost of funds during the period.
In addition, the total operating expenses grew by 12.69% to ₦139.44 billion as against ₦123.74 billion reported in 9-month of 2021, attributed to the impact of rising inflation and rising regulatory costs.
PAC Capital said the positive outlook of the expected credit losses and sustained quality of the loan book of the bank reflected in the loan impairment charge. READ: Yield on T-Bills Spikes, Bond Slides Small as Naira Falls
In the 9-month result, loan and impairment charges fell significantly by 38.29% to ₦3.70 billion from ₦5.99 billion. Consequently, profit before tax accelerated by 11.73% to ₦169.72 billion compared to ₦151.91 billion reported in 9m-2021.
PAC Capital analysts noted that the resumption of tax collection on income tax on bonds and short-term securities continued to raise the tax provision of the bank, which grew by 74.95% to ₦39.38 billion in 9m-2022 from ₦22.51 billion 12-month ago.
Higher tax provision eclipsed the strength of the bank’s bottom line as net profit rose marginally by 0.73% to ₦130.35 billion from ₦129.40 billion in the comparable period in 2021 This resulted in 12-month trailing earnings per share of ₦5.97.
“Based on the recently released figures, we maintain a STRONG BUY rating of the stock at the reference price of ₦19.00 as the present forward estimate places the bank’s share price at ₦27.84”, PAC Capital stated. # GTCO Spikes as Analysts Project Solid Upside