September 4, 2023/Cordros Report
Guaranty Trust Holding Company Plc (GTCO) published its H1-23 audited financial statement at the close of business on Friday (01 September), revealing a significant growth (+268.2% y/y) in EPS to NGN9.94 (vs NGN2.70 in H1-22). The sturdy growth in the group’s earnings was supported by the increases across its funded (+53.5% y/y) and non-funded (+319.9% y/y) income lines. Consequently, the board increased its interim dividend to NGN0.50/s (H1-22: NGN0.30/s), translating to a dividend yield of 1.3% based on the last closing price of NGN38.00/s.
The group reported a 53.5% y/y increase in interest income to NGN225.95 billion, supported by increases across major contributory lines. In nominal terms, GTCO recorded higher income from loans to customers (+25.7% y/y to NGN129.84 billion), investment securities (+66.7% y/y to NGN67.34 billion), and cash and balances with banks (+774.6% y/y to NGN23.41 billion). We attribute the higher interest income to the combined impact of the elevated interest rates in the business environment and the increase in key earning assets – investments securities (+45.2% YTD to NGN2.13 trillion) and loans & advances to customers (+22.8% YTD to NGN2.32 trillion) – during the review period.
Interest expenses inched higher by 84.0% y/y to NGN48.49 billion, triggered majorly by higher costs on deposits from customers (+79.1% y/y) despite the improvement in the group’s CASA mix (88.8% | 2022FY: 87.1%) in H1-23. Aside from the aforementioned, GTCO incurred higher costs on borrowings (+154.4% y/y) and deposits from financial institutions (+70.8% y/y). Following the faster growth in interest income than expenses, the net interest income grew by 46.8% y/y to NGN177.46 billion. However, the significant increase in credit impairment charges (NGN82.96 billion | 2022FY: NGN3.52 billion) led the net Interest income ex-LLE to settle 19.5% y/y lower at NGN94.50 billion.
As expected, non-interest income (NII) grew markedly by 319.9% y/y to NGN358.48 billion, supported by FX revaluation gains induced by the currency devaluation implemented during the period. Evidently, income from FX revaluation gains grew significantly to NGN357.47 billion relative to NGN8.20 billion in H1-22. The preceding offset the losses incurred on the group’s investment securities trading (NGN78.79 billion relative to the gains recorded in H1-22: NGN3.08 billion). On investment securities, we highlight that the NGN81.31 million impairment charges on financial assets knocked off the gains recorded from its financial instruments holdings.
Further down, operating expenses increased by 26.3% y/y to NGN125.58 billion, as the group incurred higher costs on personnel expenses (+12.2% y/y) and regulatory expenses – AMCON (+17.8% y/y) and NDIC (+18.9% y/y) – during the review period. Eventually, owing to the increase in operating income (+123.5% y/y) to OPEX, the Holdco’s operational efficiency improved as its cost-to-income ratio (ex-LLE) stayed at 27.7% (H1-22: 49.1%).
Profitability was more robust as the profit-before-tax grew by 217.1% y/y to NGN327.40 billion. Likewise, the PAT grew by 261.6% y/y to NGN280.48 billion, despite the 82.6% y/y increase in tax expense (Effective tax rate: 14.3%).
Comment: GTCO’s numbers were impressive and in line with our expectations. We like how the FX revaluation gains recorded in H1-23 boosted the Holdco’s operating efficiency. Over the rest of the year, we believe the group will maintain its positive momentum, particularly as the higher interest rates, revaluation gains, and absence of impairment charges incurred on Ghana’s debt exchange program remain upside factors. Our estimates are under review.
