Culled—Proshare

April 23, 2020

By FBNQuest Research

Limited revisions to our 2020E EPS forecast

GT Bank’s (GTB) Q1 2020 PBT was in line with our forecast. However, PAT missed by -4% because of a negative result of -N2.7bn in other comprehensive income. Following the results, we have made modest revisions to our 2020E EPS forecast (-1.3%). However, we have cut our price target by -10.9% to N52.0 because of a higher equity risk premium assumption (7.5% vs 6.5% previously). On an annualised basis, GT Bank’s Q1 PBT of N58.2bn tracks broadly in line with management’s 2020 PBT guidance of N235bn and implies an (annualised) ROAE of 28.4%, compared with guidance of >25%.

The ROAE implied by our 2020E forecast is slightly more conservative at 26.6%. In terms of asset quality, GT Bank’s NPL ratio improved by 50bps y/y to 6.0% vs. 2020E guidance of 5.0%. Although strong loan growth of 8% q/q helped, we are encouraged to see the improvement in asset quality in absolute terms (-2% q/q reduction in absolute NPL to N100.6bn). Having shed -37.3% ytd vs. -15.1% for the NSE ASI, GTB shares now trade on a 2020E P/B multiple of 0.7x for a 2021E ROAE of 24.2x.

The multiple represents a severe contraction of -44% to the 1.3x multiple that the shares were trading on in January 2020. Our new price target of N52.0 implies a significant potential upside of 180% from current levels. As such, we retain our Outperform rating on the shares.

Q1 PBT up by low-single-digits

GTB’s Q1 2020 pre-provision profits grew by 6% y/y to N99.2bn. The improvement in pre-provision profit was driven by a 10% y/y increase in funding income, which was underscored by solid loan growth of 8% q/q.  In contrast to the funding income growth, non-interest income was flat y/y. The single-digit growth in pre-provision profit was strong enough to offset an 11% y/y rise in opex and a spike (+88%y/y) in impairment for credit losses.

Further down the P&L, PAT declined by-8% y/y to N46.9bn mainly because of a negative result of -N2.7bn in other comprehensive income (OCI). Sequentially, PBT declined by -5% q/q on the back of a 27% q/q increase in opex. Below the tax line, the negative result in OCI resulted in PAT declining by a wider margin of 12% q/q.