June 22, 2021/CSL Research
Trading in Guaranty Trust Bank shares was suspended on Friday in preparation for the delisting of the bank and subsequent listing of the new Holding Company (Holdco). According to the bank’s management, GTBank is adjusting its operating model and service offerings to remain relevant in the financial services sector and position the bank for sustainable long-term growth given the increasing evolution of businesses across the globe.
Post restructuring, the GTB Holdco structure will consist of the banking subsidiaries and the non-banking subsidiaries. The banking subsidiaries will include GTBank (Nigeria, West Africa & East Africa) and GTBank UK while the non-banking subsidiaries will be a payment company, an asset management company, and a pension business.
The Non-Banking subsidiaries
Payment company
Based on information from previous conference calls, the bank plans to leverage its existing fintech business. GTbank has a vibrant fintech business. The bank’s management noted that the best description for the structure of the payment business they plan to have would be Ali Pay. GTPay is a secure internet payment gateway developed to facilitate payments online using debit cards issued by banks on the Interswitch Network. In terms of USSD transaction counts, the bank’s management noted at the FY 2020 conference call that GTbank accounts for about 18% of the NIBSS Instant Payments (NIP) outflows and about 16-17% on the inflow side. USSD is growing at about 37%, though expected to slow down as it gradually becomes more expensive. The Managing Director noted that there will be no transfer pricing as any business the fintech does will be in addition to what the bank is currently doing. There will be a merchant acquiring side, and the payment business will work with the bank to develop a mobile wallet strategy which will be taken to other three African countries, probably Ghana, Cote d’Ivoire, and Kenya to drive scale.
Pension Fund Administrator (PFA)
The management of the bank noted that a small existing business in the PFA segment will be acquired and grown organically.
Asset Management
The bank also plans to acquire an asset management business which many believe will be Investment One, a former subsidiary of the bank before the divestment of its non-banking subsidiaries to become a full commercial bank.
The scheme of arrangement
The bank’s current board will be dissolved, and new boards reconstituted for both the Holdco and the bank. There will be a seven-member board at the Holdco level and an eight-member board at the bank level.
Under the terms of the scheme and subject to the conditions, the scheme shareholders will receive the same number of Holdco shares in exchange for their current GTBank Shares. On the effective date, each shareholder of GTBank will receive one share of the Holdco shares for every GTBank shares held within five business days of the effective date.
The existing GDRs will be delisted from the LSE and cancelled. Each holder of the existing GDRs in the bank will receive for each existing GDR held, one Holdco GDR within 10 business days of the effective date.
Our view: Overall Positive
In our view, GTBank stands to benefit from the decision to operate as a holding company as this gives the bank opportunity to diversify its revenues away from the increasingly competitive commercial banking landscape. Operating the payment business as a separate company will also better position the bank to deal with competition from fintechs and the growing payment ecosystem. We also believe the bank already has an effective payment system base to take off. Provided acquisition cost is not exorbitant, we believe the bank can leverage its broad customer base to grow its pension business organically. More importantly, the new structure helps to preserve the senior management team (particularly the Managing Director of the bank who becomes the Managing Director of the Holding Company) who have been responsible for the success of the bank over the years.
Impact on numbers
Costs: We expect costs associated with the restructuring process to increase Opex though management stated that these will be minimal. Such costs include one-off costs such as legal and regulatory fees, professional advisory fees, acquisition costs and some fixed costs. There would also be some ongoing costs associated with running the Holdco.
Revenue: We expect some new revenue sources such as revenue from the PFA and asset management businesses. We also expect increased revenue from the payment business as this grows but we note that most of the initial revenue from that business segment already gets reported under the bank revenue.
We will update our model to reflect current realities as soon as we have guidance from the bank on related costs and revenue forecasts.
Click here to read full PDF copy of report
Important Risk Warnings and Disclaimers
CSL STOCKBROKERS LIMITED (“CSLS”) is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange. CSL Capital (UK) Ltd (Firm Reference Number: 913994, Registered Number: 11818051), trading in the name of ‘CSL Stockbrokers’ for its activities, is authorised by the Financial Conduct Authority (FCA).
Both CSLS and CSL Capital (UK) Ltd are members of the FCMB Group (“the Group”) of Nigeria, a group of companies which also includes First City Monument Bank Ltd.
RELIANCE ON THIS PUBLICATION FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOUTO A SIGNIFICANT RISK OF LOSS. By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of CSLS and CSL Capital (UK) Ltd. When distributing this document, CSLS, or any member of the Group is not acting for any recipient of this document and will not be responsible for providing advice to any recipient in relation to this document. Accordingly, CSLS or any member of the Group will not be responsible to any recipient for providing the protections afforded to its clients.
If you are in the UK, you are a person to whom either Articles 19 or 49 of the Financial Services and Markets 2000 (Financial Promotion) Order 2005 apply or a person to whom this communication may otherwise be lawfully made.
In the United Kingdom, this document is available only to such persons described above and persons of any other description should not rely on this document. Transmission of this document to any other person in the United Kingdom is unauthorized and may contravene the Financial Services and Markets Act 2000 (FSMA). If you are not such a person or if the distribution of this document is otherwise unlawful where you are, you are required to return the document immediately to CSLS. This document is not intended for Retail Clients in the UK.
This document is not an offer to buy or sell or to solicit an offer to buy or sell any securities. This document does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The appropriateness of a particular investment will depend on an investor’s individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for all investors.
CSLS or any other member of the Group may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to CSLS, or the Group, which is not reflected in this material. Further information on CSLS’ policy regarding potential conflicts of interest in the context of investment research and CSLS’ policy on disclosure and conflicts in general are available on request.
This document is based on publicly available information obtained from sources which CSLS believes are reliable, but which it has not independently verified. Neither CSLS, or their advisors, directors or employees make any guarantee, representation or warranty as to the accuracy, reasonableness or completeness of this information and neither CSLS or their advisors, directors or employees accepts any responsibility or liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. The opinions contained in this document are subject to change without notice and are not to be relied upon and should not be used in substitution for the exercise of independent judgment.
Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. Where an investment is denominated in a currency other than the local currency of the recipient of the research report, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. In case of an investment for which there is no recognised market it may be difficult for investors to sell their investment or to obtain reliable information about their value or the extent of the risk to which they are exposed.
The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose.
@Copyright CSL STOCKBROKERS LIMITED, 2021. All rights reserved.
CSL STOCKBROKERS LIMITED CSL Stockbrokers
Member of the Nigerian Stock Exchange A trading name of CSL Capital (UK) Ltd
PO Box 9117 43-44 New Bond Street
Lagos State, NIGERIA London, W1s 2SA
United Kingdom
