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GTCO : Operational resilience critical to earnings outlook

In FY’22, GTCO’s stock price sank 11.5%, trailing the average 8.8% gain for analysts’ coverage banks. The counter appears to have borne a significant brunt of foreign selloffs and local apathy through the year, worsened by uninspiring financial performance. For context, while our coverage banks averaged 33.6% growth in 9M’22 earnings, GTCO posted a meagre 0.7% increase, ailed by surging costs and a higher tax burden. In analysts view, the year-end rally in stock price may have reflected opportunistic trading and portfolio rebalancing rather than improving confidence on the fundamentals of the counter.

In FY’23, analysts believe that better narrative control could inspire market confidence on two fronts. First, the HoldCo could provide clearer expectations for the near to mid-term performance of the newly introduced non-banking subsidiaries. Already, the 3.0% PBT contribution of these segments in 9M’22 has bettered management’s year-end guidance of 2.0%. Nonetheless, analysts assess that the Group will need a more material PBT contribution from its non-banking portfolio companies to drive the sort of earnings diversification and resilience that can accrete shareholder value. However, analysts posit that such a contribution may require significant scaling of the businesses. For context, GTCO Pension had the third least RSA registrations in the industry as of Q3’22, and its AUMs materially trails those of HoldCo peers—ACCESSCORP, FCMB and STANBIC.

Secondly, the banking subsidiary, the prevailing mainstay of Group performance, elicits mixed feelings. On the one hand, we like the improved contribution from the non-Nigeria subsidiaries to 32.8% in H1’22 (guidance: 28.0%), and analysts expect the delineation of the East and West African markets to aid the strategic growth of this segment. However, analysts worry about the performance of the Nigerian business, which has reported earnings decline in at least two consecutive periods, partly weighed by NIM compressions. Analysts also note the slowdown in credit creation (9M’22: 1.9% vs coverage average: 13.8%), which appears to be undermining the Bank’s ability to maximise benefit from an elevated yield environment. Hence, analysts suspect that optimising the asset and liability exposures to recover NIMs would be a key strategy for the business in FY’23.

All in, analysts project a modest c.5.0% growth in FY’23 earnings, buoyed increasing asset yields and a rebound in credit growth. Adjustments to analysts model leads to an increase in 12-month target price to N27.94 for GTCO and a BUY rating. At a forward FY’23 PB of 0.80x, the counter is trading at a discount to its 4-year average of 0.97x


Target Price:N27.94

Ref Price: N24.20


Market Data

GTCOMarket Cap (N’bn)712.23

Last close price (N)24.20

52-week high-low price (N)28.05/ 16.80

Avg 3M daily volume (mn)13.33

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