Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

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FY 10 & 9M 11 Financial & Operational Review In spite of the fall in interest rates during FY 10, GTB just about managed to sustain its net interest margin from FY 09, recording 7.22% against 7.80%, as the interest income decline of 11.35% to NGN 114.0bn was less than the 31.82% fall in interest expense. The average yield on interest earning assets was 10.41% (FY 09: 12.80%) against an average cost of funds of 3.18% (FY 09: 6.20%). Net interest income thus came out virtually flat, down 0.62% to NGN 83.9bn, courtesy of aggressive liability repricing. 200 000 180 000 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 Net non-interest income was also down during the year, shedding 2.87% to NGN 39.6bn. While net fee and commission income increased 18.01% to NGN 31.0bn and net trading income was virtually unchanged at NGN 7.9bn, mark to market losses on trading investments of NGN 3.1bn meant other operating income was a negative NGN 2.3bn against a positive NGN 4.0bn in FY 09. The split of non-interest to interest income was 26:74, marginally changed from 27:73 in 2009. 0 2005 Source: GTB/IAS 2008 2007 2006 Attributable Earnings 2011 E 2010 2009 Total Operating Income 2012 E 0 Operating expenses growth was 14.83% during the period to NGN 65.3bn, as increases of 21.40%, 33.10% and 89.31% in general administration, premises and equipment and insurance premium costs, respectively, led to a 26.59% rise in other operating expenses. This was attributed to rising infrastructure and general costs. Staff costs on the other hand were down 4.49% to NGN 17.7bn. The cost to income ratio headed north to 52.9% from 45.4% in FY 09. The provision charge was a third of that in 2009 at NGN 10.6bn as specific provisions were largely accounted for in the previous period. That decline proved the key driver for net operating income/PBT, which put on 35.86% to NGN 47.6bn. There was minimal AMCON impact for GTB in 2010, with just NGN 1.7bn sold to the ‘bad’ bank. 3 000 000 2 500 000 2 000 000 1 500 000 1 000 000 500 000 0 2005 Source: GTB/IAS 2006 2007 Deposits 2008 2009 Loans & Advances 2010 2011 E 2012 E Attributable earnings for the year was NGN 38.9bn, up 36.02% from NGN 28.6bn and equating to earnings per share of 167 kobo. Dividends of 100 kobo per share were declared, up from 75 kobo in FY 09. Sierra Leone, Gambia and Ghana operations were profit and loss positive. Loans & Advances Sectoral Split (H1 11) Total assets grew 8.20% y-o-y to NGN 1.2tn, with a continued focus on the high end customer base meaning that loans and advances only went up by 5.11% to NGN 604.1bn. On the other hand, investment in securities and financial assets held for trading put on 75.10% and 13.24% respectively. Deposits growth was more positive, supported by a continued ‘flight to quality’ as observed by the bank, as they gained 11.60% to NGN 779.1bn. The loan to deposit ratio deflated somewhat to 81.7% from 85.5%. Oil and gas was the largest contributor to the loan book with 23% (including some Zenon exposure), followed by the manufacturing sector with 19%. The NPL ratio was notably better at 6.79% from 12.26% boosted by recoveries. Profitability ratios improved, with RoAE up to 18.6% from 15.1% in FY 09, while RoAA improved to 3.5% from 2.8%. The CAR closed the year at 20.81%, down from 25.99%. . 2% 3% 26% 17% Source: GTB 2% 3% 3% 4% 4% 5% 9% 13% 9% Government Capital Market Education Construction Transportation & Storage Real Estate General General Commerce Info and Comms Manufacturing Oil & Gas Finance & Insurance Other 22
The 9M results to 30 September 2011 saw gross earnings for GTB up 15.50% to NGN 138.4bn. Interest income increased by 10.87% to NGN 94.1bn, while interest expense was 20.61% lower at NGN 19.6bn. This led to net interest income gaining 23.78% to NGN 74.5bn. Net fee and commission income growth was not far behind at 22.97% to NGN 32.0bn. Net foreign exchange income was NGN 5.7bn vs NGN 3.5bn in 9M 10, while income from investments was a quarter of the NGN 4.1bn in the comparative period. After accounting for the NGN 916m in underwriting income, total operating income came out at NGN 114.2bn, an increase of 21.05%. Operating expenses growth was contained to below our expectations, up just 4.61% to NGN 53.7bn, yielding a cost to income ratio of 47.01% compared with 54.39% during the comparative period, and 47.37% at H1 11. Loan loss expenses more than doubled to NGN 11.0bn (9M 10: NGN 4.0bn) y-o-y, and were 36.88% up from H1 11’s NGN 8.0bn. Management had indicated at the half year that all AMCON related transactions for the group had been concluded, including GTB’s Zenon exposure. Profit before tax went up by 26.39% to NGN 49.3bn, and attributable earnings closed the period at NGN 40.5bn. The latter’s 33.30% rise included an extraordinary income item of NGN 2.2bn related to the disposal of the bank’s holding in one of its Small and Medium Enterprises Equity Investment Scheme positions. EPS was 173 kobo while HEPS was 164 kobo. Total assets grew 6.00% from the half year to NGN 1.5tn. Net loans and advances increased at a greater pace during Q3, up 12.18% to NGN 703.7bn, while treasury bill holdings dropped by 17.98% and investment securities were 16.79% higher. The NPL ratio improved to 2.78%, this compared with 3.61% at 30 June. Deposit growth was 4.60% to NGN 957.8bn, possibly reflecting limited appetite in a rising interest rate environment. Outlook GTB looks set to perform strongly in FY 11, driven by efficiencies on the income side, (low cost of funds and liquidity to take advantage of interest rate hikes), as well as on the expenses side, with the CIR target of below 50% likely to be attained. The NPL ratio is reflective of the much cleaner book, while the possibility of write backs thanks to aggressive H1 provisioning remains. Following the publication of the 9M results, we have revised our forecasts higher for FY 11, also adjusting for the extraordinary item recorded in Q3. We estimate diluted EPS to increase to 203 kobo (adjusted for an assumed 1 for 5 bonus issue), and dividend per share to be declared of 122 kobo, representing a payout ratio of 60%. These assumptions yield RoAE and RoAA ratios of 21.9% and 3.9% respectively. Valuation and Recommendation Using a DCF valuation, we arrive at a target price for GTB of NGN 19.34, representing 36.2% upside on its current share price of NGN 14.20. With its consistent history of solid profitability, backed by impressive asset management and cost containment skills, GTB remains our number one pick in the sector. Forward earnings and dividend yields add weight to our recommendation, justifying its premium relative ratings. BUY. GTB Q3 11 Results Summary (m) 30-Sep-11 30-Sep-10 Net interest income 74 485 60 176 Net fee and commission income 31 993 26 016 RevPar = Estimate Other Income 7 686 8 119 Operating income 114 164 94 311 Non-interest expense (53 664) (51 297) Allowance for credit impairment (10 983) (4 045) Operating profit 49 331 38 969 Attributable earnings 40 525 30 402 30-Sep-11 30-Jun-11 Loans and advances to customers 703 732 627 334 Deposits from customers 957 762 915 640 Total equity 232 408 220 697 23
Page 1 and 2: Nigeria Banking Sector Coverage - D
Page 3 and 4: Nigeria Banking Sector Overview Hav
Page 5 and 6: The breakdown, on a month-on-month
Page 7 and 8: EQUITY RESEARCH NIGERIA DECEMBER 20
Page 9 and 10: In its 9M 11 results to September,
Page 11 and 12: EQUITY RESEARCH PAN-AFRICAN DECEMBE
Page 13 and 14: In its 9M 11 results to September,
Page 17 and 18: FCMB’s 9M 11 results to September
Page 21 and 22: The 9M results to 30 September 2011
Page 23: EQUITY RESEARCH NIGERIA DECEMBER 20
Page 29 and 30: StanbicIBTC’s 9M 11 results to 30
Page 33 and 34: Interest income remained under pres
Page 37 and 38: For the 9M results to 30 September
Page 39: Imara Africa Securities (A division

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