Culled—Proshare

March 14, 2018/FBNQuest Research  

Event: GT Bank reports Q4 2017 results

Implications: Slight positive reaction once the market has digested the figures properly

Positives: PBT grew by 85% y/y, thanks to a 736% y/y growth in non-interest income

Negatives: Funding income declined by 9% y/y; we est. NPL ratio rose to c.8% from 3.9% in Q3 

GT Bank’s (GTB) Q4 2017 results which were published this morning came in strong. The results showed that PBT grew by 85% y/y to N50.2bn. Although non-interest income which grew by 736% was the main driver behind the strong earnings growth, a 54% y/y decline in loan loss provisions also helped. Funding income declined by -9% y/y. 

However, the strong performance in non-interest income completely offset the weakness here, resulting in a 31% y/y expansion in pre-provision profits. Further down the P&L, PAT grew even faster at 227% y/y, due to a  -56% reduction in income tax (tax rate of 10.6% compares with 44.0% in Q4 2016) and a significant increase in other comprehensive income (OCI); the latter was mainly driven by fair value gains on available for sale securities. 

Sequentially, while PBT was up by around 3% q/q, PAT grew by 16% q/q, thanks to the positives on the tax and OCI lines. Compared with our forecasts, PBT beat by 20% largely because of the positive surprises in non-interest income and loan loss provisions. However, the beat on the PAT line was greater at 73% because of the positive surprises in tax and OCI (for which we had no forecast). Our PBT forecast was close to consensus. 

On a full year basis, GTB’s PBT and PAT were up by 21% y/y and 26% y/y respectively. Management has proposed a dividend of N2.40 per share, higher than our N2.09 estimate. The proposed dividend imply a yield of 5.2% and a payout ratio of 39.7%. One negative in the results is an uptick in the bank’s NPL ratio which we estimate to be c.8%, up from 3.9% in Q3 2017. The cumulative provisions set aside for these NPLs are also down y/y. 

Pending management’s comment on the asset quality metrics, we believe this could be because GT Bank had substantial regulatory risk reserves of c. 200% as at Q3 2017. It would appear that the bank did not book any (material) additional provisions relating to 9mboile in Q4 beyond the N6bn it had set aside as of H1 2018, in line with comments made on the H1 conference call. 

Despite the better-than-expected results and dividends, the shares are weak today (-5% vs ASI -0.5%). This could be due to a combination of profit-taking (ytd the shares are up 16.7% vs ASI’s 12.6%), concerns as to the sustainability of the non-interest income line going into 2018 (at least N22bn of the N29.8bn recorded in Q4 non-interest income are one-off in nature) and the asset quality trends we discussed already. 

Our estimates are under review. We rate GT Bank shares Neutral. 

Conference call details: TBC

GT Bank Q4 2017 results: actual vs. FBNQuest Capital Research estimates (N millions)