As the count-down to the 30th October ultimatum for third-quarter earnings reporting season winds down, GTCO Plc, the holding company of Guaranty Trust Bank Limited, filed its nine-month financial statements with the Nigerian Exchange (NGX), reporting a 9.1 percent year-on-year decline in profit after tax to N129.4 billion for the period ending September 2021.
GTCO, which previously was the most profitable bank, has been overtaken by Zenith Bank and Access Bank, which now rank as Nigeria’s first and second most profitable lenders. While GTCO, grew profit by 4.1 percent year-on-year to N49.98 billion in the three-month between July and September 2021, the weak performance of the Group in the first half of the year continue to undermine its overall performance for the nine-month period ending September.
Notably, GTCO saw a 15.5 percent year-on-year plunge in its profit after tax to N79.41 billion in the six-month period ending June 2021. The weak performance of GTCO reflects the weak performance of its treasury operations, with interest income falling 14.5% year-on-year, due mainly to the lower interest in its loan portfolio as well as investment securities portfolio.
While interest income on loans remains strong, growing 2.8 percent on the back of a 4.5 percent year-to-date rise in loan portfolio to N1.74 trillion, the interest on Treasury securities waned significantly, reflecting the low effective yield on the securities.
It would be recalled that GTCO took advantage of the low-interest-rate environment in 2020 to book fair value gains on the securities, an accounting that seems to be hurting the Group’s portfolio now, as the yield environment rises.
Nonetheless, the fundamentals of GTCO seem to remain strong, with fees and commissions growing 51.3 percent to N56.60 billion, and representing 17.8 percent of the Group’s earnings during the nine-month period. Interestingly, Account Maintenance Charge and e-business income grew 36.5 percent and 91.0 percent, respectively, reinforcing the growing transaction volume across GTCO’s service channels.
Reflecting the continued strength of GTCO, it grew customers’ deposits by 6.7 percent year-to-date to N3.75 trillion, at a much lower cost of funds of 1.1 percent, the lowest in the industry. Maintaining its cost efficiency reputation, operating expense growth remains modest at 10.1 percent year-on-year, below the average headline inflation of 17.42 percent reported by the National Bureau of Statistics. Overall, the cost-to-income ratio was 44.9 percent, though weaker than the 40.2 percent CIR recorded in the same period of 2020 financial year but remains the lowest in the industry.
In the nine-month financial statements it filed with the NGX, GTCO’s non-performing loan ratio eased 61basis points to 5.78 percent, but still above the 5.0 percent tolerance limit of the Central Bank of Nigeria. Even at that, the bank had an impairment charge of N5.99 billion on non-performing loans, some 0.45 percent cost of rick, the total provisions coverage on loans remains low at 78.8 percent, indicating likely additional impairment charge in its full-year results. The total assets grew 4.0 percent year-to-date to N5.14 trillion, compared to its size of N4.94 trillion as of 31 December 2020.
Reflecting the declining profitability, the nine-month annualised return on average equity stood at 20.8 percent, a sharp decline from its peak of 32.3 percent in 2019 which now ranks GTCO lower on the rung, not only in absolute profitability but also in terms of value creation for shareholders, especially as lenders like Zenith Bank and Access Bank increasingly improve on profitability metrics.
Investors reacted positively to the results, with the shares of GTCO gaining 0.5 percent today to close at N28.65 per share at the close of the NGX market on Wednesday, 27 October 2021. At this price, GTCO is valued at N843.20 billion market capitalisation, well below its 52-week high valuation of N1.13trillion.
Lizzie Kings-Wali, Chief Executive Officer of Blackstone Capital Limited, believes the current price of GTCO presents strong upside both from fundamental and technical perspectives. “The current price of N28.65 is barely at par to GTCO’s book value and a bank with strong fundamentals like GTCO should be priced at premium to its book value. This is a stock that used to be priced at 2.3x Price-to-book value two years ago, even so, the RoAE has weakened from its 2019 peak to barely 20% now,” she said.
“Nonetheless, the fundamentals of GTCO remain strong and should see RoAE upside in the years ahead, an expectation which should portend upside for the share price.”
She noted further that the current price is some 25.5 percent discount to the 52-week high, which reinforces the technical upside on the share price, as it now trades at only a 6.3 percent premium to its 52-2eek low price of N26.95 per share.
“GTCO’s price is barely 4.9x Price-to-earnings ratio and translates to 10.5% dividend yield, which is an attractive valuation for a tier-1 Nigerian lender seeking exposure to other financial services offerings,” she added.