GTCO: Market focuses on sustained dividend payout as ‘Buy’ rating is maintained

Guaranty Trust Holding Company Plc (GTCO Plc) recently released its Audited Consolidated and Separate Financial Statements for the year ended December 31, 2021. Guaranty Trust Holding Company Plc was incorporated as public limited company on July 24, 2020.

The Company was licensed as a non-operating financial holding company on April 14, 2021, with the listing of its shares on The Nigerian Exchange Limited (NGX) on June 24, 2021. The Company commenced operations on August 1, 2021. The Company is a financial holding company and its subsidiaries handle Banking, Payments, Pension Fund Administration and Asset Management.

The full year 2021 financials

The full year financials released to investing public at the Nigerian Exchange Group (NGX) and London Stock Exchange (LSE) show the Group posted Profit Before Tax (PBT) of N221.5billion, representing a dip of 7percent from N238.1billion recorded in December 2020.

In the same period, the Group’s loan book (net) increased by 8.4percent from N1.66trillion while deposit liabilities grew by 14.4percent from N3.61trillion to N4.13trillion. The Group’s Gross Earnings came in lower by 2 percent to N447.810billion from N455.229billion in 2020. Net Interest Income (NII) was N220.612billion, down by 13percent as against N253.668billion in 2020.

GTCO Plc maintained a decent showing with post-tax Return on Equity (ROAE) of 20.6percent, post-tax Return on Assets (ROAA) of 3.4percent, Full Impact Capital Adequacy Ratio (CAR) of 23.8percent, and Cost to Income Ratio (CIR) of 42.3percent.

Well-structured and resilient balance sheet

GTCO Plc’s group’s balance sheet remained well structured and resilient with total assets and shareholders’ funds closing FY 2021 at N5.44trillion and N883.2billion, respectively. Full Impact Capital Adequacy Ratio (CAR) remained very strong closing at 23.8percent while asset quality was sustained with NPL ratio of 6percent based on IFRS (6.92percent based on CBN Prudential Guidelines) representing a marginal improvement over IFRS 6.4percent impaired ratio and a slight increase over FY 2020 6.86percent CBN Prudential Guideline NPL ratio. Also, Cost of Risk improved to 0.5percent from 1.2percent during the same period.

Final dividend…

GTCO Plc in its corporate action announcement noted that a final dividend of N2.70kobo per share will be paid to shareholders whose names appear on the register of members as at the close of business on Wednesday March 23, 2022 bringing total dividend paid by the company in the financial year 2021 to N3. The register of shareholders will be closed on Thursday March 24, 2022.

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“On Friday April 8, 2022, dividend will be paid electronically to shareholders whose names appear on the register of members as at Wednesday March 23, 2022, who have completed the e-dividend registration and mandated the registrar to pay their dividends directly into their bank accounts”, GTCO said in a March 7 statement at the Nigerian Exchange Limited.

What are analysts saying?

In a March 8 note to investors titled “GTCO Plc: Holdco maintains dividend payout”, Joshua Odebisi, research analyst at Lagos-based Vetiva revised upwards their Target Price (TP) for GTCO shares to N36.38 (Previous: N34.42), adding that they maintain their BUY rating for the stock. Vetiva’s BUY rating refers to stocks that their analysts consider highly undervalued, but with strong fundamentals, and where potential return in excess of or equal to 15percent is expected to be realised between the current price and analysts’ target price. “The stock is flat year-to-date (YtD) and is currently trading at a P/B of 0.8x, compared to peer average of 0.5x,” the Vetiva research analysts added.

“Earlier in 2022 it was announced that the company had completed the acquisition of the pension and wealth management businesses of Investment One, itself a former subsidiary of the bank. It is expected that these businesses will add further income lines under NIR in the coming years, and we foresee an additional 5percent to 10percent jump in this line item in the near to medium term, driven by increased wealth management fees, as well as transaction fees on pension fund activities.

“Therefore, we project 2022 Non-Interest Revenue (NIR) of N197 billion (Previous: N171 billion), a 15percent year-on-year (y/y) increase,” Vetiva analysts said, while also adding that “On the back of higher expectations for NIR, as well as our belief that cost of risk will normalize in 2022, we have revised our full year 2022 projections.”

In their stock recommendation, Lagos-based Meristem Research analysts asked investors to buy GTCO saying that their target price share price for the company is N33.51. Meristem analysts BUY rating for GTCO is because their Target Price of the stock is above the current market price by at least 10 percent. The price targets reflect in part the analyst’s estimates for GTCO earnings.

“We expect the market’s focus to be on the sustained dividend payout and the still-attractive yield. Hence, we do not foresee an adverse market reaction,” according to Ope Ani’s team of analysts at Coronation Research in their March 7 note tagged “weak funded income, higher tax rate pressure earnings”.

Coronation Research analysts who maintained their BUY rating for GTCO stock with Price Target (TP) of N36.63 compared to N26 as at March 2022 noted that the stock has upside potential of 40.9percent.

“The group’s earnings were in line with our expectations (2.5percent variance) and reflected the adverse impact of the persisting low yield environment on the group’s primary revenue source (interest income). However, we are encouraged by the fact that the group maintained its dividend payout despite the drop in earnings.

“As a result, the stock dividend yield is still attractive – it is more than double the current yield on the 1-year T-bill. We reiterate the views from our report, Coronation Research, ‘2022 Investment Strategy, Optimising Risk and Return’ 22 Feb 2022: we expect a rebound in earnings for the group in 2022, supported by an improvement in treasury yields and risk asset creation.

“In addition, after losing 19.6percent in 2021, the stock is trading at a deep discount to its peers and historical valuation. This presents an attractive entry opportunity for investors. Accordingly, we maintain our BUY recommendation on the stock,” Coronation Research analysts said.

Still on ‘the wonder of bank dividends’

In the analysts’ March 7 report tagged ‘The Wonder of Bank Dividends’, they said: “the yield in prospect for our covered bank stocks are, in some cases, double the current 1-year Treasury bill yield. Specifically, our forecast divided yields for Zenith Bank (12.4percent), GT HoldCo (11.4percent), UBA (11.1percent) and Access Bank (10.3percent) over the next twelve months are far more than the current 1-year T-bill yield (4percent).

“As part of our total returns’ strategy, we highlight that investors need to be acutely aware of dividend payment times in order to obtain the optimal return,” Coronation Research analysts added.

Group CEO speaks

Segun Agbaje, Group Chief Executive Officer, Guaranty Trust Holding Company said: “Our performance reflects the strength of our franchise and underscores our ability to deliver long-term value for our Stakeholders in spite of the challenges in the business environment and shifting economic conditions. As a Group, we have continued to explore newer ways to connect with our customers and better our communities by offering greater and more rewarding experiences.”

“2021 presented a crucial opportunity as we took strategic steps to reorganise our business and advance our position as a leading financial services company. With the recent addition of Pension Fund and Wealth Management businesses to the Group, we are well on our way to rapidly scale our operations and strengthen our foothold in these key industry segments. Our goal is to consolidate our place at the top of Africa’s financial services value chain by leveraging technology to provide end-to-end financial solutions to more people and businesses across Africa,” Agbaje added.

Knowing GTCO

GTCO Plc is a fully-fledged financial services group with banking operations across West and East Africa and the United Kingdom as well as non-banking businesses in several key industry segments including Payment, Funds Management and Pension Fund Management. With over 25 million customers and more than 10,000 employees, the Group remains one of the most profitable and best managed financial services companies out of Nigeria. Its leadership in the banking industry and efforts at empowering people and communities has earned it many prestigious awards over the years including Africa’s Best Bank and the Best Bank in Nigeria at the 2021 Euromoney Awards for Excellence. It also retained its position as Africa’s Most Admired Financial Services Brand in the 2021 ranking of The Brand Africa 100: Africa’s Best Brands.

Gale of acquisitions

On February 7, 2022 GTCO informed the investing public of the completion of the acquisition of 100percent shares in Investment One Funds Management Limited and Investment One Pension Managers Limited respectively. Its acquisition of Investment One Funds Management Limited strengthens GTCO’s foray into the wealth management space as it provide the Holding Company the opportunity of becoming a one-stop shop for financial services and products that empower its customers through the course of their lives; while the acquisition of 100percent shares in Investment One Pension Managers Limited is also in line with the Guaranty Trust brand in becoming a fully-fledged financial services company with the capabilities and drive to deliver end-to-end financial services to every African and African businesses. “The pension fund business is a natural fit for the Guaranty Trust brand,” Agbaje said.

Strengthening long-term competitiveness

Aiming to strengthen its long-term competitiveness, earnings base, growth prospects, deliver greater shareholder value and to take advantage of new business opportunities in the emerging competitive landscape, Guaranty Trust Bank Plc adjusted its operating model and was restructured by way of a scheme of arrangement between the Bank and its shareholders pursuant to the Companies and Allied Matters Act 2020, into a holding company structure.

Under the terms of the re-organisation, a financial holding company structure was established with the corporate name, Guaranty Trust Holding Company Plc (GTCO/the Company). Guaranty Trust Bank plc thereafter re-registered as a private limited liability company named Guaranty Trust Bank Limited and became the flagship subsidiary of GTCO. The following are expected to be the benefits of the Holding Company Structure: (i) Greater strategic flexibility and opportunity for diversification of the Group’s revenues; (ii) Better positioning to deal with emerging competition, for example, fintechs and payment service banks; (iii) More focused regulatory oversight of the various arms of the Group; (iv) More efficient management structure with the Holdco having the responsibility of assessing strategic initiatives for the overall benefit of the Group; (v) Preservation of senior management team, culture and business model; and (vi) Preservation of shareholder value.