April 14, 2025/Cordros Update
In this note, we update our views on GTCO following the release of the group’s 2024FY audited results. For 2025E, we expect core earnings to remain resilient. Our view is hinged on improved credit creation and investments in securities, which we expect to offset possible rate cuts during the year. However, for non-core earnings, we anticipate a decline as the stability of the naira will limit foreign exchange gains, which constituted the bulk (64.2%) of the group’s non-core income line in 2024FY. Subsequently, we project a decline in EPS owing to the dilutive effect of the new share issuances. Nonetheless, following the expectations of an improved performance and an even more robust dividend (2025E: NGN9.20/s | 2024FY: NGN8.03/s), we increase our target price by 27.3% to NGN92.77/s (previously: NGN72.85/s) and maintain our “BUY” rating. We project a final DPS of NGN9.20 in 2025E, translating to a dividend yield of 13.5% based on the last closing price of NGN68.00/s (11 April). Based on our estimates, GTCO is trading at a 2025E P/E and P/B of 2.9x and 0.8x, respectively.
Stability in naira likely to limit non-core earnings: We expect a 21.1% y/y increase in core earnings in 2025E, driven by growth in credit (+20.8% y/y) and investment securities (+37.2% y/y). We further expect the non-performing loan ratio to decline to 5.0% (2024FY: 5.2% | 2023FY: 4.2%), as the stability in the naira will prevent inflation of FCY-denominated stage 3 loans. Further supporting our case, we anticipate that the write-off of the Aiteo Group loan — which reduced Stage 2 loans to 2.6% of the total loan book (2023FY: 16.3%) — will create room for the group to transfer “cured” loans from Stage 3 back into Stage 2. Subsequently, we project that loan provisioning might ease in 2025FY in the absence of forbearance loans, leading to a decline in CoR to 2.9% (2024FY: 4.9%). Further down, we expect a decline in non-funded income (-33.3% y/y) as the growth in net fees and commission income (+52.5% y/y) will be insufficient to offset the decline in foreign equity gains (-73.9% y/y). We also expect OPEX to grow by 15.1% y/y, leading to a CIR print of 27.0%. That said, we project EPS to decline by 10.0% y/y to NGN32.26/s in 2025E, factoring in the dilutive impact of 4.71 billion additional shares from the first tranche of the capital raise.
Remarkable growth in capital buffers: GTCO’s capital adequacy ratio (CAR) increased precipitously to 39.3% (2023FY: 21.9%), following the massive addition to retained earnings (NGN910.08 billion). Management indicated that the excess capital will be directed towards branch expansion, IT investments, and working capital needs — initiatives expected to drive future growth. We like that the group has been able to maintain a fine balance between capital retention and return to shareholders (2024 final dividend yield: 10.9%), while retaining the spot as the most efficient lender (2024FY CIR: 24.2%).
Valuation: Our year-end target price is NGN92.77/s, derived from a blend of the Dividend Discount Model (60.0%), Gordon Growth Model (30.0%), relative P/E (5.0%) and relative P/B (5.0%) valuation methods. Assuming a 30.0% CoE and a forecasted payout ratio of 28.5%, our DDM TP amounted to NGN96.76/s. For GGM, we maintained CoE at 30.0% and utilised an average RoE of 23.6%, deriving a TP of NGN100.96/s. On relative P/E, we utilised the tier-1 forward average P/E of 1.5x and applied it to our 2025E EPS estimate of NGN32.26/s to derive a TP of NGN48.40/s. Lastly, for relative P/B, we estimated forward book value per share of NGN114.70/s – tier 1 peer average P/B of 0.4x – and derived a fair value estimate of NGN40.14/s.
