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

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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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Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

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