GTCO Worst Performing Stock, Analysts Expect Earnings Miss in Q3

GTCO Worst Performing Stock, Analysts Expect Earnings Miss in Q3

Equity analysts at CardinalStone Partner limited, a multi-asset investment banking firm in Lagos said Guaranty Trust Holding Company (GTCO) is the worst-performing stock in its banking coverage, according to the latest report on industries.

Since transitioning to Holdco, the GTCO Plc earnings performance has been unimpressive when compared to its historical results. For the group, so much has gone amiss, including service quality among other things.

In terms of market valuation, there is now a wider gap between GTCO and Zenith Bank. Traded at N17.6 per share On Monday, Ticker: GTCO is currently valued at about N533 billion on 29.431 billion outstanding shares.

On the other hand, the market has placed a higher value on Zenith Bank – the orange brand’s immediate rival in the past. From left, right and centre, Zenith is now beating GTCO black and blue across key performance indices.

Valued at N634 billion in the local bourse, Zenith Bank, which was behind GTBank in terms of stock market valuation initially, has outpaced the orange brand. 

In a report, the investment firm noted that the financial service group share price recorded a 34.6% price contraction from the beginning of the year to date. According to the investment firm, equities investors’ aversion to the banking stock may have partly reflected uninspiring earnings performance in recent quarters.

In particular, the company reported a 2.3% contraction in earnings in the first half of the year, representing an extension of the profit after tax (PAT) contraction recorded in the financial year 2021.

The weakness in performance has largely reflected the high tax burden that materially masked the slightly positive increase in PBT since the start of the year, according to CardinalStone.

“In our view, ex the impact of taxes, the weak growth in profit before tax (PBT) reflects a decline in net interest margin (NIM) despite the rising interest rate environment”, the report said.

CardinalStone said this NIM weakness was primarily due to a marginal decline in asset yields – a consequence of contraction yields on placements (7.7% versus 16.8% in the first half of 2022), which masked improvements in yields on loans and investment securities.

Analysts also noted the higher cost of funds due to growth in term deposit portfolio, aimed at responding to aggressive competition from FinTechs and Tier 2 banks. READ: Fixed Income Market to Remain Bearish – Analysts

Given the sustained competition from FinTechs and Tier-2 banks and the Central Bank of Nigeria (CBN) reduced liquidity tolerance, CardinalStone analysts said they see legroom for further earnings weakness in the third quarter of 2022.

“We have also revised our valuation parameters to reflect the current policy environment and weaker fundamentals”.  These adjustments resulted in a new 12-month target price of N25.94, a lower position when compared with analysts’ previous position of N33.67.

While this target price indicates an upward potential of 52.6%, CardinalStone analysts see little or no notable catalyst in the near term. However, the investment firm stated that strategic investors with a horizon of at least 1-year may consider it in their portfolio, hence our BUY rating on the counter.

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