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Gtbank’s planned switch to Holding Company seen unlocking more value for shareholders

The new decade might see Tier-1 lender Guaranty Trust Bank (GTBank) revert to a Holding Company structure, a move that could result in faster growth, better valuation and better returns for its shareholders.

The bank’s CEO Segun Agbaje during its 2019 full-year Investor Conference Call said Gtbank was considering a U-turn on a decision made about ten years ago to shed all its subsidiaries and focus solely on banking, as current environment warrants more diversified business model for better value-creation.

“Everything we have seen in the last 2 to 3 years has told us that it’s time to have a bit of a re-think,” said Agbaje, whose tenure is expected to end around the middle of next year.

Agbaje said the rethink was informed by the fact that most banks (with focus solely on banking) were growing at a rate of 5-7 percent “which is not good enough while their valuation is not very encouraging,” he said.

However, other activities in the financial services industry like in the payments services and the pension fund administration space are lucrative, supporting lenders with a diversified stream of income, as the landscape has become more competitive in the last decade.

“As an organisation, with the approval of the board, it is time to consider a holding company structure,” Agbaje said. “…it is all subject to the approval of all the regulators concerned as well as shareholders.”

Gtbank’s approach for a Holdco structure in the new decade will entail the acquisition of companies within the Pension, Insurance, Asset

Management, Payment Solutions and Financial Technology sectors, said Chapel Hill Denham in a recent report on the bank’s announcement.

According to the analysts, the Holdco structure will allow the current MD, to maintain his influence on overall performance which has improved since 2011 based on the ROAE measure.

To maximize value, Chapel Hill Denham said that the acquisition of “a tier 2 Pension Fund Administrator (those with over N400bn in assets under management, given we consider Stanbic IBTC Pensions as a tier 1 PFA) will be value accretive from scale and ROE perspectives as lower-tier PFAS have less attractive ROES.”

Chapel Hill also said it believed that insurance companies, particularly those with Life licenses will be value accretive, given the growth opportunities from annuities.

“We believe management’s efforts on strategic acquisitions should ensure GTB’S ROE stays above the 30 percent base it has consistently achieved in the past 3 years,” Chapel Hill Denham said.

Upon realisation, Gtbank will join the likes of Stanbic IBTC Holdings, FBN Holdings and FCMB Group as lenders with Holdco structures.

Company Financials

Gtbank grew its profit for 2019 full-year by 7 percent, reflective of an improvement in the bank’s asset quality and cost efficiency with cost of fund dropping to 2.4 percent in the year compared to 3.4 percent in 2018.

Gtbank reported a gross earnings increase of 0.1 percent to N435.31bn while interest income was challenged by a low-interest environment although net interest income grew 4 percent to N231.36 billion in the year accruing to the bank’s financial report.

Last year, Gtbank saw a net loans and advances growth of 19 percent to N1.5 trillion while total deposit of the bank rose 12 percent to N2.6 trillion in the year.

The lender’s retail strategy focused on innovative digital solutions served as a catalyst for consistent low-cost deposits drive and low cost of attracting fund in the year.

The bank reported a net interest margin of 9.28 percent compared to 9.23 percent and improvement in its cost-to-income ratio to 36.11 percent in 2019 from 37.09 percent in the previous year.

The bank’s liquidity position remained strong at 49.33 percent, “backed by robust Capital buffers with full IFRS 9 impact capital adequacy ratio of 22.5 percent, well above the regulatory minimum of 16 percent,” it said.

Amid a challenging market and intense competitive environment, the Group was able to deliver Post Tax ROE of 31.2 percent, Post Tax ROA of 5.6 percent and Net Interest Margin of 9.3 percent.

Outlook for 2020

For 2020, Gtbank said it expects profit before tax to grow to N235 billion, 1.42 percent more than it recorded for the year.

The lender plans to slow loan book growth to 13 percent after a surge of 19 percent last year.

Tightening economic conditions, with Nigeria, predicted to grow 2 percent in 2020 and the need to maintain asset quality, seems to have informed the bank’s projections for the year.

However, Gtbank is optimistic of driving bad loan ratio to under 5 percent compared to 6.5 percent in 2019.

Analysts at Chapel Hill Denham say Gtbank is well-positioned to deliver decent earnings in 2020 despite challenging economy.

They forecast profit growth of 3.0 percent noting the low-interestrate environment and revised bank charges which were lowered by the CBN late last year.

Chapel Hill Denham said asset quality of the bank is expected to remain strong despite risks of lower oil prices.

“We forecast GTB’S cost of risk and NPL ratio at 0.4 percent and 5.0 percent respectively vs. 0.3 percent and 6.5 percent in 2019,” the analysts said.

Market performance

Shares of Gtbank gained 5 percent Friday to N19 a unit following heavy sell-off last week that characterized trading in banking stocks as fears of the Coronavirus spread and record oil declines spooked investors.

The bank’s stock fell to the lowest in over a year, shedding over 30 percent last week.

Analysts say a dividend yield of 15.38 percent and an attractively low price of the bank’s stock could see investors gain big although there is yet no telling if the market has hit its bottom.

About the Company

Guaranty Trust Bank plc is a foremost Financial Institution with business outlays spanning Anglophone and Francophone West Africa, East Africa and Europe. The Bank presently has an Asset Base of over N3.287 trillion and employs over 10,000 professionals in Nigeria, Cote D’ivoire, Gambia, Ghana, Liberia, Kenya, Rwanda, Uganda, Sierra Leone, Tanzania and the United Kingdom.

Guaranty Trust Bank Plc. provides commercial banking services to its customers. The Bank’s services include retail banking, granting of loans and advances, equipment leasing, corporate finance, money market activities, and allied services, as well as foreign exchange operations. The bank’s only subsidiary is involved in funds and portfolio management services.

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