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+--- Thread: Gtbank ‘Buy’ ratings despite muted Q3 earnings (/showthread.php?tid=24255)
Gtbank ‘Buy’ ratings despite muted Q3 earnings - Edoman - 10-26-2019
- Gtbank ‘Buy’ ratings despite muted Q3 earnings
MARKETS
Gtbank ‘Buy’ ratings despite muted Q3 earnings
by
For investors who are looking to buy stocks that have the potential for capital appreciation and dividend income, Guaranty Trust Bank Plc is still one of them. Recently, the bank released its unaudited Interim Financial Statements for the third-quarter (Q3) ended September 30, 2019.
Despite that the bank’s Q3’19 result shows subdued gross earnings amid marginal growth in both pre and post-tax profits, Gtbank stock still makes analysts ‘Buy’ ratings.
Price trend/trading information
Year- to- Date ( YTD), Gtbank stock has decreased by 23.7percent offering an entry opportunity for value hunters. The stock market has continued to ramble in the negative territory till date but the bearish momentum offers opportunities for bargain hunting in fundamentally sound stocks.
At N26.3koobo per share which Gtbank traded on Monday, October 21, the stock is a little above its 52-week low of N25.70 after reaching a 52-week high of N39.15. Despite this, some research analysts still see Gtbank stock as a good ‘buy’ as evidenced in their target prices (TP) for the stock based on its recently released Q3 earnings. Gtbank has N774.04billion in market capitalisation and shares outstanding of 29,431,179,224 units.
Third-quarter scorecard
The bank’s gross earnings of N326.03billion in Q3’19 as against N337.27billion it earned in Q3’18 represents a decline of about 3.3percent. The Tier 1 lender reported Profit Before Tax ( PBT) of N170.65billion, which represents an increase of 3.9percent when compared with PBT of N164.24billion in Q3’2018, according to its scorecard released on Wednesday, October 16, 2019, at the Nigerian Stock Exchange (NSE). Profit After Tax ( PAT) N146.99billion against of N142.22billion in Q3’18, implies 3.4percent increase. Interest Income decreased by 5.6percent to N224.18billion compared with N237.54billion in Q3’ 18. The group’s Net Interest Income of N172.93billion in Q3’19 as against N170.64billion in Q3’18 represents 1.3percent increase.
Gtbank’s loan impairment loss of N2.76billion as against N1.73billion in Q3’18 shows growth of 59percent; Non- Interest Income (NII) of N99.96billion against N97.21billion in the corresponding third-quarter period of 2018 represents an increase of 2.8percent.
Gtbank grew its Loans and Advances to customers by 6.8percent to N1.451trillion from a corresponding year low of N1.359trillion. Deposits from customers stood higher by 5.1percent to N2.390trillion in Q3’19 from a low of N2.273trillion in Q3’18. The group’s Cost to Income Ratio (CIR) of 37.8percent in Q3’19 as against 41.1percent in Q3’18 represents a decline of 3.3percent.
Analysts views/ Target Prices Wale Olusi, research analyst at United Capital Plc in a recent note on Gtbank still set a new target price of N46.7 for the stock which represents over 70percent upside potential when compared with the current price. United Capital research favoured ‘buy’ rating for Gtbank shares.
“We retain our Buy rating on Guaranty Trust Bank at a current market price. This is on the basis of the sustained operational efficiency of the bank. In terms of market valuation, Price-to-earnings (PE) and Price-to-book (PB) ratios came in at 4.1x and 1.2x, which is well below 3year historical averages of 5.8x and 1.7x, presenting an attractive entry point at current price, ahead of full year (FY) 2019 dividend (projected at N2.5) declaration,” said United Capital research analyst.
Also, Usoro Essien, analyst at Lagos-based Vetiva Research wants investors to ‘Buy’ Gtbank stocks as evidenced the analyst’s target price of N47.89, though a slight decline from the analyst’s earlier target price of N51.4 for the stock.
“Despite its Q3’19 numbers, Guaranty Trust Bank 9- month performance shows modest yearon-year (y/y) growth in bottomline, with 9- month profit after tax (PAT) up 3percent. While we witnessed an improvement in Costto- Income ratio to 35.2percent from 36.7percent in Quarter-two (Q2) 2019, earnings per share (EPS) and annualised return on average equity (ROAE) dipped to 4.96 and 33.3percent respectively.
“We have revised our projections to reflect the misses in Q3. We have adjusted our Non-interest Income estimate downward to N139.2 billion (Previous estimate: N150.7 billion) and reduced our provisions by 17percent to N4.3 billion. Consequently, our FY’19 ROAE projection has been revised to 33.9percent, yielding a 12-month price target of N47.89 Previous estimate (N51.49). The bank’s shares have lost 22.6percent year-to-date ( YTD) and are currently trading at a P/B of 1.3x versus a Tier-i peer average of 0.7x”, the Vetiva research analyst stated.
Azeez Lawal’s team of research analysts at Capital Bancorp Plc set a target price of N40-N50 per share for Gtbank achievable within long term investment horizon.
“GTB released its 9 months results barely two weeks into the 10th month; this is a show of confidence and an enviable level of fiduciary responsibility. This act along with its resilient performance leaves investors with reasons to hang on to the shares of the bank despite the turbulence in the equities market,” the research analysts at Capital Bancorp Plc stated.
“The Company’s results present a mixed tale of economic realities, resilience and best in class. The decline of 3.33percent in the company’s gross earnings is a reflection of economic realities. However, the bank grew her operating income by 1.94percent as a show of resilience and a flow with the tide. Interestingly, the last GDP growth rate released by National Bureau of Statistics (NBS) was 1.94percent. Best in class is what you call a company that holds her expenses at record levels, if I cannot earn more, I shouldn’t spend more. Riding on its efficiency, the bank delivered a growth in profit of 3.35percent at a cost-to-income rate of 36percent. GTB continues to deliver a masterclass on efficiency,” analysts at Capital Bancorp further stated.
Guy Czartoryski-led research analysts at Lagos-based Coronation Merchant Bank want investors to ‘hold’ Gtbank shares. The analysts ‘Hold’ rating is given to stocks they feel is fairly valued which they expect to perform in line with the Benchmark over the next 12 months. Their target price for Gtbank is N35 represents over 30percent upside potential relative to the current price.