GTCO: BUY rating maintained as H1 shows earning capacity remains strong

Guaranty Trust HoldCo (GTCO) recently released its audited financial results for the half-year (H1) period ended June 30, 2021.

The results at the Nigerian Exchange Limited (NGX) and London Stock Exchange show a decent performance across key financial metrics against the challenging business environment.

The performance reaffirms GTBank’s ability to cope effectively in depressed times, and as one of the most profitable and well managed financial institutions in Nigeria.

The H1’21 scorecards

The Group reported profit before tax (PBT) of N93.1billion, representing a dip of 15.2percent compared to N109.7billion recorded in the corresponding period of June 2020 –the dip in profit was attributed to the present realities of the operating environment. GTCO grew deposits by 4percent in H1’21 to N3.754trillion from N3.610trillion in H1’20.

Though gross earnings decreased slightly by 7.7percent to N207.914billion in H1’21, from N225.139billion in H1’20, the Group’s transactional income maintained an upward trajectory as shown in fees and commission income which grew by 44.7percent from N26.5billion in H1’2020 to N38.3billion in H1 2021.

The structure and earning capacity of the Group’s balance sheet remains resilient with total assets closing at N5.017trillion, primarily driven by a 4percent increase in deposit liabilities from N3.611trillion in December 2020 to N3.755trillion in June 2021 and a slight dip in loans (net) by 1.8percent from N1.663trillion as at December 2020 to N1.632trillion in June 2021.

Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 24percent, while Asset quality was sustained as NPL ratio and Cost of Risk (COR) closed at 6percent based on IFRS (6.8percent based on CBN Prudential Guidelines) and 0.27percent in June 2021 to 6.4percent and1.18percent in December 2020, respectively.

GTCO Plc continues to post one of the best metrics in the Nigerian Banking industry in terms of key financial ratios that is post-tax Return on Equity (ROAE) of 19.7percent, post-tax Return on Assets (ROAA) of 3.2percent, Full Impact Capital Adequacy Ratio (CAR) of 24percent and Cost to Income ratio of 49percent.

Group Chief Executive speaks

Segun Agbaje, Group Chief Executive Officer of Guaranty Trust Holding Company Plc said, “The results reflect our commitment to building on our track record of solid financial performance, and our capability to constantly innovate will ensure we stay ahead of the curve at all times.”

“We are counting on the enduring support of our loyal customers and the hard work of our dedicated staff to continually make end-to-end financial services easily accessible to everyone and to create the best outcomes for all our customers and the communities in which we operate,” he added.

Agbaje said: “Looking forward, we are focused on bringing to bear the full benefits of our new corporate structure by consolidating our leading position in all the economies where our franchise operates. We will also diversify our earnings from core banking, continue to empower businesses across Africa and beyond, and generate long-term returns for our shareholders.”

Read also: Five takeaways from Nigeria’s biggest banks’ half-year results

Analysts maintain BUY rating for GTCO stocks
In their September 20 stock recommendation to investors, Lagos-based Meristem urged investors to buy GTCO shares saying that their full-year Target Price (TP) for the stock is N34.25.

Also, Lagos-based GTI Research analysts in their September 20 stock recommendation rated GTCO a BUY considering the analysts N37.50 per share target price for the bank.

Ope Ani, analyst at Coronation Asset Management had in a September 10 note rated GTCO stock a BUY with the analyst’s target price at N36.63, which represent a remarkable upside potential of about 31percent from N28 it closed last week.

“The pass-through of rising interest rates on customer loans may become evident in the third-quarter (Q3) numbers, potentially restoring Net Interest Income (NII). The recent fall in market interest rates may also help this happen. Combined with the remarkable rise in Net Fees and Commissions, there is the potential for earnings to recover. Accordingly, we maintain our BUY recommendation on the stock”.

Also, Joshua Odebisi, equity research analyst at Vetiva Research in a September 10 note to investors insisted GTCO stock is a BUY with their Target Price at N34.89. Vetiva’s analysts Buy rating refers to stocks that they 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.

Meanwhile, Vetiva analysts adjusted their FY’21 forecast for GTCO to reflect H1 performance and the analyst’s new expectations for second half (H2).

Corporate action …to pay out interim dividend worth N8.8billion

An interim dividend in the sum of 30kobo per ordinary share of 50kobo, subject to deduction of appropriate withholding tax (WHT), will be paid to shareholders whose names appear in the register of members as at Monday, September 27, 2021, for ordinary shareholders and on September 16, 2021, for holders of GTCO’s Global Depository Receipts (GDRs).

Register of Ordinary Shareholders will be closed on Tuesday, September 28, 2021, while the register of Global Depository Receipts (GDRs) holders closed on September 17, 2021.

On Tuesday, October 12, 2021 dividend will be paid electronically to ordinary shareholders whose names appear on the register of members as at Monday, September 27. GTCO has 29,431,179,224 shares outstanding which imply that it will pay out interim dividend of about N8.8 billion.

Delivering innovative banking products

Guaranty Trust Holding Company Plc has been at the forefront of delivering innovative banking products and services to customers and superior Return-on-Equity (ROE) to shareholders. It is widely regarded as the best managed financial institution in Nigeria and was recently recognized as Africa’s Best Bank and the Best Bank in Nigeria at the 2021 Euromoney Awards for Excellence. GTCO 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.

Shares trading information

Seven days trades

GTCO stock is among the value counters that hit a record low lately, thereby offering bargain hunters reentry opportunities. The N27.3 per share it opened this week implies about 13.6 percent decrease year-to-date (YtD), underperforming the market’s benchmark index with also negative return in excess of -3.39percent as at that day. At N27.3 per share, GTCO share price is slightly above its 52-week low of N25.25 but below a record 52-week high of N38.45.

Expected benefits of a Financial Holding Company Structure

The following are expected to be the benefits of the bank’s conversion to a financial holding company structure: greater strategic flexibility and opportunity for diversification of the Group’s revenues; better positioning to deal with emerging competition, for example, fintechs and payment service banks; more focused regulatory oversight of the various arms of the Group; more efficient management structure with the Holdco having the responsibility of assessing strategic initiatives for the overall benefit of the Group; preservation of senior management team, culture and business model; and preservation of shareholder value.

Shareholding analysis

The analysis of the distribution of the shares of GTCO as at June 30, 2021, shows no individual shareholder held more than 5percent of the issued share capital of the Bank except Stanbic Nominees Nigeria Limited which held 6,165,841,484 units, representing 20.95percent of the issued share capital of GTCO. Note that Stanbic Nominees Nigeria Limited held 20.95percent of the Bank’s shares largely in trading accounts on behalf of various investors. Stanbic Nominees does not exercise personal voting rights on the said shares.

Corporate governance

GTCO board is committed to the highest standards of business integrity, ethical values and governance; it recognises the responsibility of the Bank to conduct its affairs with transparency, prudence, fairness, accountability and social responsibility, thereby safeguarding the interests of all stakeholders. The Board ensures that an appropriate level of checks and balances is maintained, in order to ensure that decisions are taken with the best interest of the Bank’s stakeholders in mind.

During the 2021 half-year (H1) in review, the Bank executed various governance initiatives/activities which included; the review of the Bank’s Corporate Governance Code and Charters of all the Board Committees in order to align same with leading international practices and existing regulations in the Country. The Bank also put in place a Charter for the Board of Directors to delineate the responsibilities of the Board. The Board and its Committees also carried out annual self-assessments to review compliance with the terms of reference as contained in their respective Charters. GTCO continues to serve customers, clients and communities; and create value for stakeholders.

Entrenched in the fibre of the Bank is the culture of openness which promotes healthy discourse and encourages employees to report improper activities.

The belief that success is only worth celebrating when achieved the right way, through a process supported and sustained with the right values remains one of GTCO’s guiding principles.