May 8, 2025/Cordros Report
GTCO released its Q1-25 results, reporting the highest EPS in the industry (NGN7.84). However, this print was a sharp decline from the EPS reported in the corresponding period (Q1-24: NGN16.23). We cite that the group recorded strong core growth (+41.1% y/y), however, the lower non-core income weighed on profitability. Looking ahead, we expect core earnings to remain resilient due to improved credit creation and allocation to investment securities. However, for non-core earnings, we anticipate a decline as the stability of the naira will limit fair value gains. Following the marginal downward revision of our EPS to NGN31.68 (previously: NGN32.26), we reduce our target price by 6.1% to NGN87.14/s (previously: NGN92.77/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 at the last closing price of NGN68.00/s (8 May). Based on our estimates, GTCO is trading at a 2025E P/E and P/B of 2.98x and 0.8x, respectively.
Non-core earnings to pare: We expect a 28.0% y/y increase in core earnings in 2025E, driven by growth in credit (+32.0% y/y) and investment securities (+36.9% y/y). We also expect this to be supported by the 28.8% y/y growth in earning assets in 2025E amid the high-rate environment. We expect the elevated rates to also translate into higher funding costs (+15.9% y/y) for the HoldCo, resulting to a net interest income growth of 31.2% y/y. However, on the back of a more stable naira, we forecast a 40.6% y/y decline in non-funded income, as the anticipated growth in net fees and commission income (+52.5% y/y) is unlikely to offset the significant drop in foreign equity gains (-90.1% y/y). Additionally, we expect operating income and OPEX to rise by 2.4% y/y and 17.9% y/y, respectively, resulting in a cost-to-income ratio ex-LLE of 25.7% (2024FY: 24.1%). Accordingly, we project a 11.6% y/y decline of the Holdco’s EPS to NGN31.68 in 2025E, reflecting the dilutive effect of the additional 4.71 billion shares issued after the first tranche of the ongoing capital raise.
Improved Asset Quality: As noted in our 2024FY update, we projected a decline in the HoldCo’s NPL ratio, supported by exchange rate stability, which we believe would limit further FX-induced growth of Stage 3 loans. Additionally, we indicated that the write-off of the Aiteo Group loan would ease pressure on asset quality, enabling the reclassification of previously impaired exposures from Stage 3 back to Stage 2. GTCO’s NPL ratio moderated to 4.5% in Q1-25 (2024FY: 5.2%), and we forecast a further decline to 4.2% in 2025E. We also anticipate an improvement in the HoldCo’s cost of risk to 2.9% in 2025E (2024FY: 4.2% | 2023FY: 3.9%), reflecting reduced provisioning needs on account of a cleaner loan book.
Valuation: Our year-end target price is NGN87.14/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 29.0%, our DDM TP amounted to NGN90.23/s. For GGM, we maintained CoE at 30.0% and utilised an average RoE of 23.0%, deriving a TP of NGN95.45/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 NGN31.68/s to derive a TP of NGN47.52/s. Lastly, for relative P/B, we estimated forward book value per share of NGN114.11/s – tier 1 peer average P/B of 0.4x – and derived a fair value estimate of NGN39.94/s.
