Guaranty Trust Bank Plc H1'18 results - Earnings beat; company declares N0.30/share interim dividend

9 August, 2018

Good morning,

Guaranty Trust Bank Plc (GUARANTY) H1'18 results "" Gross earnings improved by 6.0% YoY to N225.2 billion, slightly ahead of our estimate of N216.6 billion (-4.0% deviation). Likewise, after tax profit climbed by 14.2% YoY to N95.6 billion, beating our estimate of N88.4 billion (-8.1% deviation). On a quarterly basis, gross earnings impressed by 6.7% QoQ to N116.2 billion, supported by a 24.5% growth in non-interest income and lower impairment charges. As a result, after tax earnings increased by 14.0% to N50.9 billion.

GUARANTY proposed an interim dividend of N0.30 per share which translates to a dividend yield of 0.8% based on the last close price.

Other highlights:

·     Interest income was relatively flat in Q2'18 (+0.4% QoQ), as a 1.8% QoQ increase in income from loans and advances was offset by a 1.7% QoQ decline in income from investment securities. Net interest margin remains sturdy at 9.6% (Q1'18 "" 10.1%).

·     Notwithstanding the decline in fees and commission income (-21.2% QoQ), non-interest income improved (+24.5% QoQ) "" boosted by FX revaluation gains (+117.9% QoQ), dividend income (+6441.5% QoQ) and trading income (+45.5% QoQ).

·     Asset quality improved further as non-performing loans (NPL) declined to 5.8% (Q1'18 "" 6.2%), while cost of risk (CoR) remained relatively flat at 0.1%. During the quarter, impairment charges declined by 76.0% QoQ to N393 million (Q1'18 "" N1.6 billion).

·     Operating expenses inched higher in Q2'18 (+11.6% QoQ) impacted by higher AMCON charges. We believe that the bank has taken its full year AMCON levy in H1'18, hence we do not expect this to impact numbers going forward. Irrespectively, cost-to-income ratio remains impressive at 38.8% thanks to improved operational efficiency.

·     Net loans and net assets declined by 10.9% and 20.5% to N1.3 trillion and N497.1 billion respectively. In contrast, total assets improved by 5.9% to N3.6 trillion during the quarter.

Analyst take: Another decent result from GUARANTY in H1'18, as improvement in non-interest revenue (35.8% YoY) more than offset a slowdown in net interest income (-9.0% YoY). Asset quality remains impressive as impairments declined by 71.8% during the period, while NPL ratio improved to 5.8% (Q1'18 "" 6.2%; FY'17 "" 7.7%). More so, we continue to see improved cost efficiency as the bank's optimization strategy plays out. At 22.0%, the bank's capital adequacy remains well above regulatory minimum, despite the impact of IFRS 9 implementation. Our outlook, hence, remains positive for the bank in FY'18E, with an EPS forecast of N5.95 (FY'17 "" N5.77). Based on our last review, our price target for the firm is N48.50 (BUY).