GTBank : Better margins from improved profits

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As GT Bank prepares to release third quarter results, it is apposite to note that the bank stock has had capital appreciation where analysts forecast that it would shave in value. The rise was mainly on the back of the encouraging second quarter run of the bank.
As of June ending when the results were announced, the stock price was N35 but it has appreciated by N7 since then to counter analysts forecast that the stock was going to lose 10 percent of its value from that time on. Consequent upon that forecast, they advised investors to hold their positions in the Segun Agbaje led bank.
But the bank has outperformed the All Share Index (ASI) in the last six months, returning 70 percent compared to the ASI’s 46 percent. The result is similar over a longer 12 month horizon.
Our observation when the second quarter results were released was that the jump in the bank’s stock price betrayed the lethargic rise in earnings, which grew by a weak 2 per cent to N214.1 billion from N209.87 billion to suggest that the bank may have attained early maturation relative to peer, Access Bank that have grown revenues more than 70 percent in same period. The thin growth in earnings is despite a respectable50 percent growth in interest income to N165.9 billion from N109.8 billion, which signifies improvement in the bank’s maturity transformation activity or ability to wring gains from interest bearing assets. The restricted 18 percent rise in interest expenses to N36.35 billion from N30.7 billion further improved the bank’s performance as it gave a 64.2 percent bounce to net interest income to N130 billion from N79.12 billion. The racing metric, gives a sense that the bank is earning more from interest income than it is expending on interest expenses.
A significant drop in impairment, 88.8 percent, kept income high relative to the comparative period at N122.32 billion, up from N41.57 billion. This improvement was crucial to what eventually happed to bottom line.
The result also showed a bank that is paying more attention to interest bearing activities than commission yielding businesses as net fee and commission income slid 22.3 percent to N27 billion from N34.81 billion. The rising numbers robbed off on pre-tax profits, growing it 18 percent to N101.1 billion from the former attainment of N86 billion. It also helped to fork up net profit 17 percent to N83.68 billion from N71.77 billion.
The bank was able to wring better margins from improved profits as pre-tax profits rose to 47.22 percent from 40.83 percent while net profit margin grew to 39.1 percent from 34.2 percent. The growth is testament to good cost management by the bank with “231 branches, 17 Cash Centres, 18 e-branches, 35 GTExpress locations and more than 1165 ATMs” across the country.
In the first quarter interest income jumped 50.6 percent to N80.11 billion from N55.8 billion in the period. This jump, along with sundry factors pushed the bank’s bottom line 62 percent better than the equivalent period in 2016.
Relative to interest income, Interest expense rose at a weaker rate of 19.6 percent to N17.98 billion from N15.04 billion to propel net interest income to a much more comfortable position at N66.13 billion from N40.8 billion. The rise helped improve net interest margin to 2.56 percent from the previous position of 1.53 percent. It means the ability of the bank to wring out profits from interest bearing assets is better relative to the previous quarter.
After providing for impairments and operating costs, the bank improved pre-tax profit even if fee and commission income dropped a few notches in the period. Pre-tax profit grew 64.3 percent to N50.4 billion from N30.68 billion. Despite paying N8.9 billion in tax compared to N5 billion paid earlier, net profit shut up to N41.48 billion from N25.61 billion, a 62 percent rise.
All said, we expect the third quarter results to be much better given that activities in the economy have picked up since the economy exited the recession, albeit at a weak level. Referencing the bank’s recent S&P ratings of ‘B’ long-term and ‘B’ short-term counterparty credit ratings, analysts have viewed the bank’s outlook as stable. “The affirmation reflects our view that the bank will continue to display good earnings and above-sector-average asset quality indicators despite slow economic recovery in Nigeria”, according to Proshare.

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