By Emeka Anaeto, Business Editor
EQUITY investors’ in the Nigerian stock market appear to be swinging back on bull-side of the stock of Guaranty Trust Bank Plc (GTB) after a frosty-footed reaction to the half year, 2017 (H1’17) earnings and benefits announcement by the bank’s board early last week. The share price had headed south, dropping 6.1 per cent within the first two days trading post-result announcement.
But by close of trading last week a full recovery was recorded. Analysts are not sure if the bull’s head that reared on Friday would be sustained this week against the wave of bargain hunting which had pervaded the market since last week.
Ahead of the GTB earnings announcement investment sentiments had indicated a price peak for GTB leading to a push-back just at near N40, over eight-year high. But the result was not well received just like that of Zenith Bank the previous week despite some impressive spots in the performance highlights.
GTB’s H1’17 highlights
Gross earnings improved marginally by 2.0 per cent year-on-year (YoY) to N214.1 billion, in-line with analysts’ estimate while after tax earnings increased by 16.6 per cent YoY to N83.7 billion. The modest earnings came at the backdrop of a significant drop in income from Foreign exchange (Forex) lines during the period, just as the growth in the period was supported by income from interest-bearing assets.
But remarkably, the bank stated its H1’16 earnings downwards to N71.1 billion from N77.5 billion previously reported as the bank adjusted the accounting treatment of its AMCON levy expenses.
However, Interest Income spiked by 51.1 per cent YoY to N165.9 billion in H1’17, supported by strong yield from government securities as well as higher interest rates on existing loans. In contrast, non-interest income declined significantly by 51.8 per cent YoY to N48 billion (H1 2016: N100 billion), as a result of a one-off Forex revaluation gain recorded in H1 2016.
Despite the high yield environment, GTB held down interest expense at moderate growth rate of 18.5 per cent YoY. This complemented the 63.7 per cent YoY growth in Net Interest Income (NII) in H1’17.
Showing a healthy balance sheet, the bank’s Net Impairments Charges fell by 80.8 per cent YoY and 10.9 per cent quarter-on-quarter (QoQ) to N7.2 billion and N3.4 billion in H1’17 and Q2’17 respectively. During the period, the bank recovered N3.7 billion from loans previously written off and also N3.5 billion from previously booked collective impairments following the improvement in macro-economic conditions. Consequently, Cost of Risk (CoR) declined significantly by 380 basis points to 0.45 per cent (H1 2016: 4.25%), while Non-Performing Loan (NPL) ratio remained flat at 3.7 per cent, much better than both CBN benchmark and industry average.
However, the bank appears to be sustaining its stringency on risk asset creation. Thus, net loans declined by 6.3 per cent to N1.5 trillion. But total asset and net asset increased by 3.7 per cent and 6.6 per cent to N3.2 trillion and N538.0 billion respectively. Operating expense (OPEX) surged by 24.0 per cent to N68 billion (H1 2016: N55 billion), driven by a rise in other operating cost, reflecting the elevated inflationary level. However, the increase in cost was offset by the faster rate of growth in interest income during the period. Consequently, Cost-to-Income Ratio (CIR) increased marginally to 40.2 per cent from 39.0 per cent.
Commenting on the financial results, Mr. Segun Agbaje, the Managing Director/CEO of GTB, stated: “Our strong performance in the first half of 2017 reflects the strength of our businesses, the quality of our past decisions and the success of our efforts towards becoming a digital-first customer-centric Bank that offers simple and easily accessible products and services.
“Despite the challenging environment of slow economic growth, we focused our resources on strengthening relationships with our customers, creating business platforms that seek to add value across all customer segments, whilst consolidating our leading position in all the economies in which we operate”.
The board of GTB had hoped to assuage the investors with an interim dividend of N0.30, but analysts believed this was not impressive enough to elicit a positive sentiment towards the stock, hence the initial lukewarm reception for the earnings announcement.
Reacting to the results, equity analysts at WSTC Financial Services Limited, a Lagos based investment house, stated: “The elevated yield environment continued to support earnings in H1’17, and we expect this to continue in H2’17. Despite recording significant growth in interest income, we expect the decline in non-interest income to weigh down gross earnings, consequently we expect gross earnings to moderate marginally in FY 2017.
“However, we expect the slower pace of interest expense growth, as well as lower impairment charge to support earnings in H2’17.
“We revise our fair value estimate upward to N39.82 and maintain a ‘HOLD’ recommendation, due to significant appreciation in stock price.