Guaranty Trust Bank PLC H1’20 – Bank maintains dividend payout amid mixed earnings


Guaranty Trust Bank maintains dividend payout amid mixed earnings

Net Interest Income up 10% y/y
Provisions rise 210% y/y amid economic downturn
Uncharacteristic Opex growth of 20% y/y
Bank declares interim dividend of ₦0.30/share (H1’19: ₦0.30)

Slide in profits occasioned by higher provisions, Opex

GUARANTY released H1’20 results yesterday, reporting 3% y/y growth in Gross Earnings to ₦228.3 billion. The bank’s Net Interest Income grew 10% y/y to ₦127.6 billion thanks to a 20% moderation in Interest Expense.

Meanwhile, Non-Interest Income grew by a modest 2% y/y to ₦74.6 billion, caused by a 30% decline in fees and commissions income to ₦24.7 billion, which offset an impressive 723% y/y growth in foreign exchange gains, a result of the local currency devaluation.

On the other hand, provisions rose 210% y/y to ₦6.8 billion, while Opex rose 20% y/y to ₦85.7 billion. As a result of this, PBT came in 5% weaker y/y at ₦109.7 billion, while PAT printed at ₦97.3 billion. This yielded an EPS of ₦3.17 while the bank also declared interim dividend of ₦0.30 (H1’19: ₦0.30).
H2’20 expectations tempered by mixed Q2 performance

It was generally expected that Q2 performance would be affected by the pandemic-induced lockdown. GUARANTY’s Q2 performance was a mixed bag, with the bank recording flat Interest Income q/q whilst Interest Expense grew 5% q/q. Meanwhile, provisions grew in excess of 300% q/q to ₦5.5 billion, eclipsing the whole of 2019 provisions (₦4.9 billion) in a single quarter. Looking forward and based on previous years’ pattern, we expect provision growth to moderate in Q3 before another uptick in the final quarter.
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Furthermore, the bank’s 11% q/q growth in Opex is a deviation from regular pattern, as GUARANTY has historically kept Opex growth in the low single- digits both on a quarterly and yearly basis.

However, we highlight the nature of the expense charges; the uncharacteristic rise in Opex was driven by rises in deposit insurance premiums (+105% y/y), AMCON charges (+11% y/y) and Admin expenses (+116% y/y). Going into the second half of the year, we do not expect a repetition, although the disparity has caused an upward revision of our FY Opex forecast to ₦162.3 billion (Previous: ₦134.8 billion).
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TP revised to ₦41.79 (Previous: ₦45.14)

Ultimately, we have revised our FY profit projection to ₦191.7 billion (Previous: ₦197.3 billion). Consequently, our FY’20 ROAE projection of 27.5% (Previous: 30.4%) and EPS of ₦6.51 (Previous: ₦6.70) yield a target price of ₦41.79 (Previous: ₦45.14). GUARANTY currently trades at P/B and P/E ratios of 1.2x and 3.8x vs. Tier I averages of 0.5x and 2.8x respectively.

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