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Recapitalisation seen improving earnings potential —GTCO

GTCO: Recapitalisation seen improving earnings potential

…as analysts maintain BUY ratings

Recently, Guaranty Trust Holding Company Plc (GTCO) released its audited consolidated and separate financial statements for the year ended December 31, 2023.

The results at the Nigerian Exchange Group (NGX) and London Stock Exchange (LSE) show GTCO Plc recorded group profit before tax (PBT) of N609.3billion for year 2023, representing an increase of 184.5 percent from N214.2billion recorded in the corresponding year ended December 2023. The group’s gross earnings rose remarkably to N1.186trillion in 2023 from N539.234billion in 2022.

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The group’s loan book (net) also increased by 31.5 percent from N1.89trillion recorded as at December 2022 to N2.48trillion in December 2023, while deposit liabilities grew by 63.7 percent from N4.61trillion in December 2022 to N7.55trillion in December 2023.

With total assets and shareholders’ funds closing at N9.7trillion and N1.5trillion, respectively, GTCO’s balance sheet remained well structured, diversified, and resilient.

Full Impact Capital Adequacy Ratio (CAR) remained very strong, closing at 21.9 percent, while asset quality was sustained as IFRS 9 Stage 3 loans improved to 4.2 percent in December 2023 from 5.2 percent December 2022. However, Cost of Risk (COR) closed at 4.5 percent from 0.6 percent in December 2022 owing to worsening macros which caused significant increase in ECL variables.

The Group continues to post one of the best metrics in the Nigerian Financial Services industry in terms of key financial ratios that is; pre-tax return on equity (ROAE) of 50.6 percent, pre-tax return on assets (ROAA) of 7.6 percent, full impact Capital Adequacy Ratio (CAR) of 21.9 percent and Cost-to-Income ratio of 29.1 percent.

Group CEO speaks on the full year 2023 financials

Segun Agbaje, Group Chief Executive Officer, Guaranty Trust Holding Company Plc while commenting on the results said: “The challenging operating environment of 2023 truly tested the business model we put in place for the Holding Company, for both our banking and non-banking business verticals.

“Harnessing the Group’s synergies yielded a strong performance, allowing us to strengthen our foothold in banking whilst also building viable and resilient businesses of HabariPay, Guaranty Trust Fund Managers, and Guaranty Trust Pension Managers. Also important to our success is our relentless obsession with innovation and offering great customer experiences as demonstrated by the successful redesign and upgrade of our mobile banking application, GTWorld,” he said.

Agbaje added: “In a landscape characterised by evolving regulatory reforms, global uncertainties, and heightened competition, we have continued to leverage our inherent strengths and capabilities to unlock significant value, creating more opportunities for the businesses and individuals we serve. As we navigate the challenges and opportunities that lie ahead, we are confident that our robust underpinnings and focus on flawless execution will continue to drive sustainable growth across all our operations and deliver long-term value for our stakeholders.”

Race to recapitalise

GTCO Plc plans to raise $750 million through right issue according to its recent notice at the Nigerian Exchange Limited (NGX) ahead of its 3rd Annual General Meeting (AGM) on May 9. This comes as the Central Bank of Nigeria (CBN) announced a ten-fold jump in minimum capital requirements for banks, nearly two decades since the last exercise last month.

GTCO plans to raise the additional capital of up to $750 million through the issuance of securities comprising ordinary shares, preference shares, convertible and/or non-convertible notes, bonds or any other instruments, in the Nigerian and/or international capital markets.

Read also: Financial inclusion: Government targets 60m unbanked Nigerians with Aso Accord

Reward for shareholders

The directors recommend the payment of a final dividend of N2.70kobo per ordinary share of 50 kobo (bringing the total dividend for the financial year ended December 31, 2023, to N3.20kobo.

The directors had during the 2023 financial year declared and paid an interim dividend of 50 kobo per ordinary share on the share capital of 29,431,179,224 ordinary shares of 50 kobo each, for the half-year (H1) period ended June 30, 2023.

According to the register of members as at December 31, 2023, no individual shareholder held more than 5 percent of the issued share capital of the bank except for the following: Stanbic Nominees Nigeria Limited (Stanbic) and Zenith Pension Fund Custodian (Zenith PFC) which held 19.78percent and 8.32percent respectively of the Company’s shares largely in trading accounts on behalf of various investors. Stanbic and Zenith PFC do not exercise personal voting rights on the said shares.

Analysts want investors to BUY the stock

Olumide Sole, equity research analyst at Lagos-based Vetiva in their April 19 note to investors said their target share price for GTCO is N50, thereby rating the stock a BUY.

“Sequel to the CBN’s move to review upward the minimum capital requirements of Nigerian banks to improve their lending capacity, we estimate GTCO’s funding gap at N362 billion. We posit that the recapitalisation exercise would improve the earnings potential of the bank in the long run. However, in the near term, we expect GTCO’s number of outstanding shares to increase, which would in turn lead to a dilution of shareholders’ equity.

“In compliance with the CBN’s directives, the bank has announced its intention to raise additional capital of $750 million via the issuance of securities comprising of ordinary shares, convertible or non-convertible notes, bonds or any other instruments. Of note, the bank seeks to issue an additional 15 billion shares to increase its issued share capital. Based on this, we expect the bank’s number of shares outstanding to increase to 44.4 billion from 29.4 billion.

“Based on our new projections, we have increased our FY’24 PBT and PAT forecast to N919 billion (+51percent y/y) and N816 billion (+51percent y/y). However, in line with our expectation of a dilution of shareholders’ equity as result of the bank issuing additional shares, we expect a slight decrease in EPS to N18.04 (FY’23: N18.07) per share. Nonetheless, we revise our 12-month Target Price (TP) to N50 (Previous: N44.00). GTCO is currently trading at a P/B ratio of 0.73x and P/E ratio of 1.88x,” the Vetiva analyst said.

Also, CardinalStone research analysts in their April 9 earnings update said asked investors to buy GTCO shares, saying their target price for the stocks is BUY: N53.18.

“In its audited FY’2023 financials, Guaranty Trust Holding Company (GTCO—BUY: N53.18) reported a material surge in PAT (+219percent) to N539.7 billion. The strong financial performance highlighted: the impact of the higher interest rate environment on an expanded earning assets base; and the passthrough effect of currency devaluation on foreign currency (FCY) asset exposures, which resulted in higher FX revaluation gains,” CardinalStone analysts said.

Read also: Financial experts predict quick return to profitability for Nigerian Breweries, others

About GTCO

Guaranty Trust Holding Company Plc (GTCO) is publicly quoted on the Nigerian Exchange Limited with Global Depositary Receipts (GDRs) listed on the London Stock Exchange and it remains dedicated to its duties and pledge to safeguard and increase investors’ value through transparent corporate governance practice.

GTCO remains steadfast in implementing its strategy, aligning same with sound corporate governance principles to increase value for its stakeholders.

Recognising the pivotal role of GTCO in fortifying the Guaranty Trust brand, the Board of Directors remain resolute in upholding best in class governance standards, which remain essential for business integrity and the preservation of investor trust in the Group. The Company acknowledges that adherence to optimal corporate governance standards is integral to the long-term success of the Group.

Operating within the interconnected corporate governance frameworks, the Board fulfills its oversight responsibilities by providing strategic guidance to the Group, making informed decisions, and ensuring compliance with regulations.

Continuous efforts are dedicated to ensuring that operations generate sustainable value for shareholders, fostering corporate success. The belief is that sound corporate governance practices enhance the confidence of shareholders, customers, business partners, employees, and financial markets, as well as all other stakeholders.

As a proudly African and truly international brand, the Company is committed to upholding values of excellence, hard work, and integrity. This commitment persists as the Company innovates to deliver faster, more cost-effective, secure, and diverse products for individuals and businesses of various sizes and types.

GTCO remains dedicated to its founding values that have endeared the brand to millions across Africa and beyond, propelling continued financial success.

Throughout the year, the Group’s governance framework played a pivotal role in the development and expansion of the Company’s subsidiaries—Guaranty Trust Bank Limited, Guaranty Trust Fund Managers Limited, Guaranty Trust Pension Managers Limited, and Payment Subsidiary HabariPay Limited.

Guaranty Trust Bank Limited (GTBank) stands as a stalwart in the financial landscape, embodying a commitment to excellence and innovation. GTBank has grown to become one of the leading financial institutions in Africa, with a reputation for delivering top-notch banking services. GTBank’s dedication to upholding the highest standards of corporate governance has earned it the trust of a diverse clientele, ranging from individual account holders to large corporates.