GTBank Plc: A profitable year
By Folakemi Emem-Akpan
Guaranty Trust Bank (GTBank) had a relatively good year in terms of profitability for its 2015 financial year. While profitability ratios were a little lower than those of 2014, they yet surpassed most banks’ corresponding ratios for 2015. The ratios are also still high enough for the bank to be considered effective.
We are of the opinion that the shareholders of GTBank Plc. will yet receive a dividend from their stock holdings at the end of 2016. They are however more likely to earn more through capital gains, if only they are prepared to hold on to their stockholdings for a while. Our analysis shows that the bank’s shares are currently undervalued, and that such shares are likely to increase in price. When this happens, investors’ stockholding will be more substantial.
Also, our CAMEL analysis shows that the bank is now better managed than it was in the distant past, and will more likely flourish the more, resulting in further improvements in profit making, retention and sharing to shareholders.
As was the trend with many banks for the 2015 financial year, clients patronised GTBank a little more in terms of taking out loans, overdrafts and advances, and the bank’s loan portfolio increased significantly to N1.37 billion. Average lending rate increased over the preceding year’s, while average deposit interest rate also increased. This means that the bank charged its lenders more, but also paid its depositors a better interest. Its level of deposits was however lower than that of 2015.
This caused net interest margin, the true test of a bank’s effectiveness in its core banking operations of lending and borrowing, to improve to 69.8 per cent in 2015 from 51.1 per cent in 2014. This is very impressive.
The bank’s gross earnings (an addition of its interest income and other fees and commission) increased to N301.9 billion during the course of the year, 8.4 per cent better than the prior year’s. Pre-tax profit was able to grow only by 3.7 per cent to N120.7 billion, and profit after tax grew by 5.3 per cent to N99.4 billion.
Earnings per share, was predictably higher than that of the prior year, closing at 351 kobo, as compared to 332 kobo before. Dividend per share however decreased to 152 kobo in 2015 from 175 kobo in 2014.
Despite a high turnover during the course of 2015, as well as better profits, the bank did not record an improvement in its profitability ratios. Profit margin for the year was 40.0 per cent, slightly lower than 41.8 per cent in 2014, meaning that for every N100 earned by the bank in the course of the year, N40.00 made it to the profit position, as compared to N41.80 for the preceding year.
Returns on assets and equity also both declined slightly in 2015, return on assets (ROA) to 4.8 per cent from 4.9 per cent, and return on equity to 24.0 per cent from 25.9 per cent. It is important to note that the declines in profitability ratios were very slight.
Another important thing to note is that while GTBank’s results were not as high as those of the preceding year, they were heads and shoulders above those of other banks for the same period under review. This is very commendable.
GTBank was one of the few that did not downsize its work force in 2015. In fact, its employee number increased to 5,138 persons in 2015 from 4,923 persons in 2014. Earnings per employee improved to N58.7 million on the average, up from N56.6 million in 2014. This is an indication of employee productivity and company efficiency.
The proportion of the bank’s loans classified as non-performing in the course of the year was 3.21 per cent, slightly higher than 3.15 per cent in 2014, but still within acceptable levels. In terms of capital adequacy, GTBank also did not perform better, than it did in the prior year. Its equity (a company’s primary and cheapest source of funding) could finance about 18.1 per cent of the loans and advances it gave out to borrowers, down from and worse than the 21.4 per cent recorded in the erstwhile year.
The bank had a debt to equity ratio of 5.1 times, meaning that it is using N5.10 of liabilities in addition to each N1.00 of stockholders equity. In other words, the bank is using N6.10 of total capital for every N1.00 of equity capital.
The bank gave a total dividend of 177 kobo per share held for its 2015 financial year, and the retention ratio in 2015 was lower than that of 2014, with the bank dedicating a higher proportion of after-tax profit to dividend payout than in the prior year. Analysis shows that sustainable growth for 2015 was 13.8 per cent, lower than 17.7 per cent before, and this translates to mean that the bank’s growth ceiling, utilizing only its own source of funding for growth, dropped. Meanwhile, actual growth was 8.4 per cent, lower than the review year’s sustainable growth. The bank is currently operating below its ceiling.
On February 4 2017, the market price of GTBank was N23.02, one of the higher priced banking stocks on the NSE. We find the stock to be overvalued i.e. it is currently being sold at a higher price than it should.
Several indices point to this overvaluation. For example, , P/E ratio as at analysis date was 6.67 while earnings yield was 0.15. Also, net assets per share is N14.05, much lower than the current market price.
Book value is also much lower than market capitalisation, with the bank being worth less on paper than it is on the floor of the Nigerian Stock Exchange, as shown by a higher market value as compared to its book value. This also, is not good news for the investor.
We do not recommend a buy at this price.
GTBank’s result for the 2016 third quarter shows both top line and bottom line growth. Gross earnings improved by as much as 43 per cent percent over the corresponding figure in 2015, and profit advanced by almost 60 per cent. Earnings per share jumped to 424 kobo from 265 kobo in quarter 3 2015. Meanwhile, net interest margin was 73.3 per cent, better than 69.8 per cent before. If the bank continues in this vein, it should have a good showing come year end 2016, and this should be to shareholders’ advantage.
One unique thing about GTBank is its commitment to promoting good corporate governance and best practices in the conduct of its business. The Bank was issued a Commercial Banking License with International Scope in 2012 by the Central Bank of Nigeria, following the divestment from all its non-banking subsidiaries in compliance with the CBN Regulation on Scope of Banking Activities and other Ancillary Matters. Hence, it is fully an international bank with subsidiaries in Ghana, Sierra Leone, UK, Rwanda, Uganda, and Kenya amongst many other countries.
Despite the general unsteadiness in the banking industry, GTBank seems to have weathered the storm very well, turning out a profit that is considered sizeable. Its current unaudited results suggests that it might end 2016 on a better note than it did 2015.
*Source: GTBank’s 2015 financial report
*GTBank’s 2016 third quarter unaudited results
*The Nigerian Stock Exchange