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Tuesday, March 28, 2023

Analysts Recommend Buy ratings on GTBank Ahead Holdco Structure

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The train is leaving the terminal and whoever has not bought a ticket could be left behind and miss out on a fantastic voyage.

Investors will be shooting themselves in the foot and gnashing their teeth if they do not have Guaranty Trust Bank’s shares in their portfolio; this is because the Holding Company Structure as proposed by the lender is expected to add impetus to earnings.

To diversify its revenue base and remain competitive in the light of the current regulatory environment and market dynamics, GTBank has decided to adopt a model that will comprise commercial banking, payment services, and pension fund assets.

Analysts at Chapel Hill Denham said in a latest report to clients that the low Nigerian pension Asset Under Management (AUM) as a relative to the GDP compared to African peers is positive for the Holdco structure.

They added that Nigeria’s youthful population and the recent introduction of transfer windows in the pension industry are tailwinds for profitability.

The bank can also leverage on its existing infrastructure and client base to bolster earnings in the payment service and asset management segments, according to analysts.

The recent apathy for equities that depressed the shares of bellwether companies is a blessing in disguise for GTBank as its share price trades below fundamentals, making it cheap and attractive.

It has a price to earnings ratio of 4.89 times, and it has a high dividend yield and analysts expect a high payout at the end of 2021.

Analysts at Chapel Hill have reiterated their BUY rating on GTBank and raised their target price (TP) by 8.9 percent to N46.89, implying a total return of 73 percent (FY-21E dividend yield: 11.4%).

GTB trades on a FY-21E P/B of 0.91x and ROAE of 24.5 percent. The share price is down 10.66 percent YTD.

 “We see the current market price as an attractive re-entry point. Based on our assumptions, we arrived at a cost of equity of 18.96 percent,” said the analysts.

Nigerian banks have been hard hit by the central bank strident regulations that are shrinking revenue and the coronavirus pandemic added to a new layer of concerns as the virus ballooned impairment charges on financial assets.

The regulator, in a bid to spur lending to the real sector, hiked the minimum loans to deposit ratio to 65 percent. But forcing lenders to extend credit to risky assets could lead to deteriorating asset quality.

Also, the decision by the central bank to bar individuals and corporates from its Open Market Operations (OMO) dealt a great blow to banks that rely on juicy yield to magnify profit.

Incessant demand to banks account for missing on cash reserve ratio (CRR) by the regulator is a torn in the flesh for operators in the industry.

Despite these monumental challenges, Analysts at Chapel Hill Denham forecast a 7.2 percent rise in earnings per share (EPS) to N7.34 in as at the end of the year (FY-21E) following higher net interest income and higher non-interest revenue.

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