Coy: GUARANTY TRUST BANK PLC. (GUARANTY)
Rating: Buy
Current Market Price: N26.00
NPL RATIO (Q1-2019): 7.03%
Year High: N39.15
Year Low: N25.70
Fair Value: N36.02
By: Jeariogbe Tunde Segun (Equity Analyst)
Introduction
- This report observed the half year financial statistics of Guaranty Trust Bank Plc for the period ended 30th June, 2019; compared same with similar result in 2018 financial year to establish growth and rate performance accordingly
- As generally expected, the management of Guaranty Trust Bank announced an interim cash dividend of 30k/share. Please note that the same amount was paid as interim at the end of 2018 half year business activities.
- According to the document released through the exchange, the qualification date for the said dividend is 2nd September, 2019, while the payment date is Wednesday, 11th September, 2019.
- As at the end of the first quarter of 2019, the Non-Performing Loan Ratio of Guaranty Trust Bank stood at 7.03% this is an increment from the 6.10% in the third quarter of 2018 and a downward adjustment from the 7.30% at the end of 2018 financial year.
- We stepped down our previous valuation of Guaranty Trust Bank by 11.06%. This is due to reduce growth rate observed in its financial metrics, see below for our fair value for each units of Guaranty Trust Bank listed shares.
- Scanning through the half year metrics, we noticed an almost flat position when placed side by side similar periods in 2018.
- See below for further analysis
| GUARANTY | |
| Bourse | Nigerian Stock Exchange |
| Code Name | GUARANTY |
| Sector | FINANCIAL SERVICES |
| Market Classification | MAIN BOARD |
| Nature of Business | Commercial Banking |
| Date of Incorporation | July 20th 1990 |
| Date Listed | September 9th 1996 |
| End of Accounting Year | 31st December |
| Website | www.gtbank.com |
| Registrar | Datamax Registrars Limited |
| Auditor | PricewaterhouseCoopers |
| Share Price@Relsd (N) | 26.00 |
| Earnings per Share | 3.37 |
| Intrinsic Value(N) | 36.02 |
| Share Outstanding | 29,431,179,226 |
| Market Capitalisation | 765,210,659,876 |
Company figures
- Gross Earnings estimated for the period stood at N212.38 billion, a marginal reduction of 0.75% from the N213.98 billion estimated from the 2018 half year performance indices
- Interested Income reported was same as N148.99 billion as against the N161.88 billion posted in the comparable period of 2018
- Interest Expenses on the other hand dropped by 25.76% to stand at N32.62 billon compared to the N43.95 billion posted in 2018 half year financials. Please observed the impact of the reduced Interest Expenses on the company Net Interest income for the current period
- Net Interest Income was therefore estimated for N116.36 billion, same as 1.33% marginal drop over the N117.92 billion in 2018.
- Operating Expenses on the other hand adjusted marginally down by 4.16% to N58.01 billion from the previously estimated N60.53 billion
- Supported by improved Net Fee and Commission Income and other Income, Profit before Tax was valued at N115.78 billion, same as 5.61% above the N109.63 billion achieved in similar period of 2018
- Thus, having considered the tax expense for the period, a total of N99.13 billion was finally reported as profit for the period, this is an improvement over the N95.58 billion earned at the end of 2018 half year
- Meanwhile, Total Comprehensive Income for the period was estimated at N100.17 billion up from the N94.37 billion achieved in 2018 half year
| GUARANTY | |||
| Statement of Comprehensive Income | |||
| 2019(Mill) | 2018(Mill) | %CHG | |
| GROSS EARNINGS | 212,381 | 213,982 | 0.75 |
| INTEREST INCOME | 148,992 | 161,880 | 7.96 |
| INTEREST EXPENSES | 32,627 | 43,951 | 25.76 |
| NET INTEREST INCOME | 116,364 | 117,929 | 1.33 |
| OPEX | 58,018 | 60,537 | 4.16 |
| DEPRECIATION | 9,331 | 7,123 | 31.00 |
| AMORTISATION | 1,290 | 1,106 | 16.62 |
| PBT | 115,787 | 109,632 | 5.61 |
| TAX | 16,654 | 14,051 | 18.53 |
| PAT | 99,133 | 95,581 | 3.72 |
| TOTAL COMP INCOME | 100,172 | 94,377 | 6.14 |
| Statement of Financial Position | |||
| Total Assets | 3,598,112 | 3,548,870 | 1.39 |
| Total Liabilities | 2,995,101 | 3,051,788 | 1.86 |
| Net Assets | 603,010 | 497,081 | 21.31 |
| Retained Earnings | 128,213 | 46,367 | 176.52 |
| Total Deposits | 2,552,094 | 2,371,324 | 7.62 |
| Total Loans and Advances | 1,274,443 | 1,293,160 | 1.45 |
- Total Assets of Guaranty Trust Bank Plc was currently valued at N3.59 trillion, a marginal improvement over the previous estimate of N3.54 trillion
- Total Liabilities on the other hand dipped by marginal 1.86% to stand at N2.99 trillion compare to the N3.05 trillion estimated in 2018
- Thus, Net Assets grew by 21.31% at the current value of N603.01 billion against N497.08 billion
- Retained Earnings soared by 176.52% to stand at the current N128.21 billion as against N46.36 billion last year
- Total Deposit was also mildly grown over comparable period to N2.55 trillion against N2.37 trillion of 2018
- Total Loans and Advances inched down by 1.45% to stand at the current N1.27 trillion compared to the previous N1.29 trillion
Financial Strength/Solvency Ratios
- We have estimated the Debt Ratio at 0.83x as against 0.86x last year, implying an improved asset valuation against last year. Please note that Total Deposits was added to the Liabilities figure used in the estimate
- We also ascertained that the Total Debt for the period can replicate Equity 4.91 times this is a reduced position from the 6.14 times replicate estimated from 2018 half year statistics
- Total Equity was estimated at 17% of the Asset Value at the end of the period, this is an improvement of 19.65% over the 14% estimated in the corresponding period
- We have currently estimated a Beta value above the market Beta for Guaranty Trust Bank Plc shares. Please note that at 1.06 beta value, its still below the industrial average of 1.34.
| Financial Strength/Solvency Ratio | |||
| TICKERS | 2019 | 2018 | %CHG |
| Debt Ratio | 0.83 | 0.86 | 3.20 |
| Total Debt to Equity Ratio (MRQ) | 4.97 | 6.14 | 19.10 |
| Equity Ratio | 0.17 | 0.14 | 19.65 |
| TICKERS | GUARANTY | Industrial Average | %CHG |
| Beta Value | 1.06 | 1.34 | 20.90 |
Profitability Ratios
- Earnings before Interest, Depreciation and Amortisation (EBITDA) Margin from the Gross Earnings is currently estimated at 67.36%, a 9.27% growth over the previously estimated 61.65% in 2018
- Pre-Tax Margin stood at 54.52% up from the last estimate of 51.32% at the end of 2018 half year business
- Difference observed between the Tax Rate between the two periods compared, originated from Deferred Tax Expense. Thus, Effective Tax Rate differed by 12.23%
- Interest Expense figure posted for the period is same as 15.36% of the Estimated Gross Earnings figure; this is a reduced position against the previously estimated 20.54%
- Return Achieved on Average Equity used through the period was estimated at 16.44% this is below the 19.23% return achieved in 2018 half year
- See below table for detailed profitability ratios and comparison
| PROFITABILITY RATIOS | |||
| TICKERS | 2019 | 2018 | %CHG |
| EBITDA MARGIN | 67.36% | 61.65% | 9.27 |
| PRE-TAX MARGIN | 54.52% | 51.23% | 6.41 |
| EFFECTIVE TAX RATE | 14.38% | 12.82% | 12.23 |
| IE TO GE | 15.36% | 20.54% | 25.20 |
| ROAE | 16.44% | 19.23% | 14.50 |
| ROAA | 2.76% | 2.69% | 2.30 |
Efficiency Ratios
- Operating Expenses is estimated to be 27.32% of the Gross Earnings Value estimated for the period, this is a marginal drop from the 28.29% estimated from 2018 financial statistics
- Similarly, Gross Earnings was estimated to be 5.90% of Total Assets, this is a 2.11% marginal drop in efficiency when compared to estimate from the corresponding period
- Total Loan to Deposit Ratio achieved at the end of the quarter stood at 49.94% down from the 54.53% achieved in 2018 half year. Please note that this is below the CBN mandated 60% which was expected to be achieved for the third quarter of 2019
| EFFICIENCY RATIOS | |||
| 2019 | 2018 | ||
| OPEX TO GE | 27.32% | 28.29% | 3.44 |
| GE TO TA | 5.90% | 6.03% | 2.11 |
| LDR | 49.94% | 54.53% | 8.43 |
| Working Capital Ratio | 1.20 | 1.16 | 3.31 |
Investment/Valuation Ratios
- Profit made on each units of Guaranty Trust Bank shares at the end of the quarter had been estimated at N3.37 as against the previously estimated N3.25
- Total Comprehensive Income per unit shares is estimated for N3.40 versus N3.21 in corresponding period of 2018
- Price to Earnings Ratio adjusted for half year stood at 1.93x as against 3.00x in 2018
- The said earnings per share is same as 12.96% of the current market price of Guaranty Trust Bank Plc shares on the floor of the exchange when the result was released this is a better yield when compared to the previous half year estimate
- The current Book Value of Guaranty Trust Bank is N20.49, a 21.31% improvement from the N16.89 estimated last year
- Confirming a seemingly over-priced position is the Price to Book Value ratio that stood clearly above unity
| Investment/Valuation Ratios | |||
| Tickers | 2019 | 2018 | %Chg |
| EPS | 3.37 | 3.25 | 3.72 |
| TCIP/SHARE | 3.40 | 3.21 | 6.14 |
| P/E-Ratio | 1.93 | 3.00 | 35.72 |
| Earnings Yield | 12.96% | 8.33% | 55.57 |
| BV/Share | 20.49 | 16.89 | 21.31 |
| PBV | 1.27 | 2.31 | 45.04 |
| CAPEX | 1.22 | 0.29 | 319.19 |
Valuation
As noted in our intro above, we adjusted down our fair value for each units of Guaranty Trust Bank Plc’s shares by 11.06% to N36.02 from the previous N40.50 (Q3-2018). Considering the distant between the current market price of the equity on the floor of the exchange and our fair value, we rated it a Buy
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