Guaranty Trust Bank (GTB) has published audited FY16 results, posting 38% y/y increase in EPS tracking ahead of Bloomberg’s consensus estimates by 4% and our estimates by 11%. The strong earnings was driven primarily by FX revaluation gains which accounted for 59% of non-interest revenues. If we back out the FX revaluation gains, core operating income increased by 14% y/y vs. a 50% increase if we incorporate FX revaluation gains.
Interest income from loans drive NII: Net interest income was also positive, increasing by 22% y/y, materially ahead of our estimates by 20%, driven by a 19% increase in interest income from loans and advances. Net customer loans increased by 16% y/y, driven by Loans to individuals and Oil and gas which increased by 46% and 37% respectively. We link the depreciation in the currency to the material increase in its oil and gas exposure given that a material amount is in foreign currency. Foreign currency loan exposure increased to 58% of total loans from 49.5% in FY15. However, loans to agriculture and general commerce declined by 53% and 37% respectively. We attribute the weak macro to the contraction in loans to the general commerce sector.
Non-interest revenues (NIR) increased by 114%, in-line with our expectations, driven primarily by FX revaluation gains. If we back out FX revaluation gains, NIR declined by 5% as net trading income and net fees and commissions declined by 57% and 2% respectively.
Concentration risk remains a concern: Credit losses increased fourfold to N65.3bn, driven by higher impairments as NPL ratio increased to 4.8% vs. 2.1% and 3% for Access and Zenith Bank respectively. 77% of the impairments are general provisions, implying some proactive steps, given the weak macro, as the strong revaluation income provides room for that. Total exposure to the oil and gas sector increased to 36.3% of total loans from 30.7% with the upstream sector accounting for a considerable amount. Even though improvement in oil price and local production should depress deterioration risk, the high concentration to the sector remains a concern.
Catalysts: The bank declared a final dividend of N1.75, implying a total dividend of N2 vs. our expectations of N2.03 and dividend yield of 7.8%. Dividend pay-out stood at 43% vs. 49% for Zenith Bank. We expect an appreciation in the stock price today given that the result was released at the close of trading yesterday.
Valuation: We maintain our BUY recommendation and TP of N30. GTB remains our top pick in the banking sector.
Source: SBG Securities
