GTCO Q3 2021 Results Review: FY 2021 Earnings Likely to Miss Guidance

November 19, 2021/Proshare

by FBNQuest Research 

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8% Average Cut to Our FY ’21-22f EPS Forecasts

GTCO‘s Q3 ’21 pre-tax and post-tax earnings improved markedly q/q because of double-digit reductions in loan loss provisions and opex. However, the results were still lacklustre. On a y/y basis, PBT, PAT and total comprehensive income were up by low single-digits. Relative to our forecasts, PBT missed by c.-10% mainly because of negative surprises on both revenue lines. Also, on an annualised basis, GTCO’s 9M ’21 PBT of N152bn tracks behind consensus FY ’21 PBT forecast of NGN218bn, and management’s full year guidance of NGN243bn. Similar to most banks, GTCO’s funding income has underperformed this year, largely because of low yields on investment securities.


Unpacking the components of funding income, net interest income from customer loans and advances grew 8% y/y over 9M ’21 due to strong loan growth of 6% q/q. However, the gains were completely offset by a significant drop in interest income from investment securities to c.NGN9.3bn in 9M ’21 compared with c.NGN55bn in 9M ’20.  Consequently, we have cut our FY ’21-22f funding income forecasts by c.7% on average. These revisions underpin the average cut of 8% to our FY ’21-22f EPS forecasts and the 9% reduction to our price target. 

On the back of our new forecasts, we expect GTCO’s FY ’21 PBT to decline by 11% y/y to NGN212bn. Our new forecasts imply an ROAE of 18.3% including other comprehensive income (OCI) or 22.9% (ex- OCI), well below guidance of 25%. GTCO shares are trading on a ’21f P/B multiple of 0.9x for 21.0% ROAE in FY ’22f. These compare with an average multiple of 1.1x for 12.2% FY ’22 ROAE that MSCI EM banks are trading on. The bank’s shares have shed -19.3% year-to-date vs. the +7.5% return on the NGX ASI. Our new price target of NGN38.2 implies a potential upside of 46% from current levels. Consequently, we keep our Outperform rating on the shares.

PAT up by Low Single-Digits y/y

GTCO’s pre-provision profits were up 5% y/y, driven by a 38% y/y growth in non-interest income. The expansion in non-interest income was driven by income from net fees and commissions, and other income which advanced by 58% y/y and 7% y/y respectively over 9M ’21. In contrast to the growth in non-interest income, funding income declined -10% y/y because of an 8% y/y reduction in interest income and a 5% y/y rise in interest expense during the quarter. GTCO’s PBT growth narrowed to 2% y/y due to an 18% y/y rise in opex which totally offset a -62% y/y decrease in loan loss provisions. PAT and total comprehensive income increased by 4% and  3% y/y respectively. 

Proshare Nigeria Pvt. Ltd.


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