GTBank Q4 2019 Results Review: >25% ROAE in View Despite Modest EPS Growth


10% increase to our 2020-21E EPS forecasts

GT Bank’s (GTB) Q4 2019 PBT came in ahead of our forecast due to positive surprises in pre-provision profits and loan loss impairments. Consequently, we have increased our 2020-21E earnings forecasts by c.10% on average. Our new price target of N58.4 is also c.15% higher. Regardless of the upward revisions to our earnings forecasts, our 2020E PBT forecast of N233.3bn is flat y/y (+0.7%). Management stated on its Q4 2019 conference call that it is confident that the bank will deliver a 2020E PBT of N235bn despite the challenging operating environment.

According to management, the key levers to drive growth are: a) strong loan growth of c.13% y/y b) focus on cost efficiencies aimed at further reducing its cost-to-income ratio below the 36% mark, c) volume growth of its non-interest income business, particularly e-payment transactions and d) improvement in the performance of foreign subsidiaries. Although management’s PBT guidance implies just 1% earnings growth y/y, it is supportive of the minimum ROAE guidance of 25%. We are particularly encouraged by management’s readiness to grow its market share of quality loans to offset the pressure on NIMs.

Its consideration of a Holdco structure, in other to explore opportunities in fast-growing segments of the financial services space, including fintech, payments, insurance and asset management is also positive in our view. Given the bank’s net long US$ position of c.US$1.3bn, we believe that it is better positioned to withstand macro-economic headwinds relative to most of its peers. Our PBT forecast of N233bn is just shy of guidance and implies an ROAE of 26.9%. GT Bank shares are trading on a 2020E P/B multiple of 0.8x, for an ROAE of 26.9% in 2021.

These compare with the average multiple of 0.5x for16.8% ROAE that our universe of bank stocks is trading on. Having shed 25.4% ytd (vs. -4.4% ASI) our new price target implies a potential upside of 164% from current levels. As such, we retain our Outperform rating on the shares.

Q4 PBT up 19% y/y, driven by solid growth in pre-provision profits

GTB’s Q4 PBT grew by c.19% y/y, driven by an 18% y/y increase in pre-provision profits and a -46% y/y reduction in loan loss provisions. Of the two revenue lines that contributed to pre-provision profit growth, the non-interest income line which grew by 26% y/y was the stronger. However, funding income also grew by 13% y/y.

PAT grew by 19% y/y, thanks to a positive result of N4.2bn in other comprehensive income (OCI). Sequentially, PBT increased by 11% q/q, driven by similar growth in pre-provision profits. However, PAT advanced by 26% q/q because of the positive result in OCI.

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