Stock Rating: BUY
Revised Price Target: N68.35
Previous Price Target: N43.01
Price (30 October 2024): N53.30
Potential Upside (Downside): +28.2%
Ticker: GTCO NL
THUR OCT 31 2024-theGBJournal| Coronation Research has upgraded Guaranty Trust Holding Company (GTCO) target price from N43.01/s to N68,53/s, after it’s H1 2024 and 9M 2024 results beat expectations.
The revised target price of N68.35/share represents potential upside of 28.2%, supporting a BUY stance on the stock.
Coronation says the adjustment reflects the bank’s robust performance up to H1 2024 and the recently released 9M 2024 performance, allowing for a positive outlook based on strong fundamentals.
”We anticipate continued strength in core earnings drivers, particularly in Net interest income and Non-interest income,” says Blessing Ishola, Analyst at Coronation Research.
GTCO released its unaudited 9M 2024 results after trading hours Tuesday. The results showed 181.5% y/y growth in Profits before tax and a 195.8% y/y growth in Net profits.
However, Q3 2024 numbers analysed on a standalone basis show a decline in earnings quarter-on-quarter.
Pre-tax profits declined by 56.4% quarter-on-quarter, while Net profits were lower by 60.5% q/q with the major drag on earnings from a 217.3% q/q decline in Other income.
Overall, the main earnings drivers for the Group remain interest income from core lending and investing activities and earnings from unfunded aspects of the business, particularly, unrealised fair value gains on financial instruments.
”The bank’s solid positioning within the financial services industry and effective risk management contribute to our continued confidence in its performance trajectory,” says Coronation Research.
GTCO is targeting credit growth of 30% for FY 2024. We think this is achievable following the group’s improvement in key ratios. This includes its Non-performing loan (NPL) ratio which fell below the regulatory maximum of 5.0% at the end of 2023
and which stood at 3.1% as of 9M 2024, due to an extensive write-offs of legacy loans.
In addition, for FY 2024 the group expects lower loan provisions, forecasting a Cost of Risk of 0.8%. So far in 2024, the Cost of Risk for GTCO has settled at 2.9% y-t-d.
While the group’s guidance suggests 30.0% loan growth, we have set our growth projection at 25.0% to be a little conservative due to current macroeconomic challenges.
”We believe that the group is well-positioned to benefit from revaluation gains due to ongoing Naira depreciation. This is due to its exposure to US dollar-denominated equity positions.
We note the Naira’s 44.36% y-t-d depreciation against the US dollar and the possibility of more depreciation by the end of the year,” says Ishola.
GTCO Net interest income is forecast to rise significantly in 2024 FY, with a projected 110.4% increase. This outlook is based on an expanded interest earning asset base, which made up 78.0% of total assets as of 9M 2024, allowing the group to position itself to capitalise on rising yields.
In addition, the ongoing hawkish stance of the Central Bank of Nigeria (CBN) is set to help improve returns on investments.
Key Ratios:
-Net Interest Margin: rose to 10.7% in 9M 2024 from 7.6% in 9M 2023. We expect this to settle at 11.6% for 2024FY.
-Cost-to-Income Ratio: improved to 18.7% in 9M2024 from 25.9% in 9M2023.
-NPL Ratio: declined to 3.1% in 9M 2024 from 3.8% in 9M 2023, well below the regulatory limit of 5.0%
-ROAE/ROAA: Currently at 70.4% y/y and 11.4% y/y, respectively.
Coronation Research say they anticipate continued strength in the GTCO’s core earnings drivers, particularly in Net interest income and Non-interest income.
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