Event

Gross earnings grew by 13% year-on-year to N125.02bn, driven by interest income growth. Interest income grew by 24% year-on-year to N85.29bn, while non-interest income declined by 5% year-on-year to N39.73bn.

Due to a rising interest rate environment, asset yields improved and supported interest income growth. Meanwhile, the core earning assets (i.e., loan book and investment portfolio) grew moderately by just 2% year-on-year to N2.93trn.

Interest expense increased by 26% year-on-year to N16.45bn – reflecting the impact of higher interest rates on the funding base. Nonetheless, net interest income (net of impairment) grew by 26% year-on-year to N68.66bn.

Although fee and commission income rose by 12% year-on-year, a decline in ‘other income’ offset the gains, and non-interest income declined on a net basis.

Spurred by the solid net interest income growth, the Group recorded a 14% growth in operating income to N106.46bn.

Consistent with the heightened inflationary environment, operating expenses increased by 16% year-on-year to N39.99bn. The key expense drivers were energy costs, regulatory costs, and human capital-related expenses. Therefore, cost-to-income ratio advanced by 100 basis points to 38% in Q3 2022 (Q3 2021: 37%).

The strong performance from income supported bottomline growth. Profit before tax grew by 13% year-on-year to N66.48bn. However, due to higher effective taxes, profit after tax recorded a moderated growth of 6% year-on-year to N52.79bn.

Outlook

We expect the high-yield environment to continue driving growth in the near term as assets get repriced. However, we do not expect a material increase in volumes of interest-earning assets due to weakening macroeconomic fundamentals.

We also expect the cost of funds to increase further as competition for funds rises in the retail segment. We see retail deposits considering higher yields, in reaction to high inflation levels and the influx of other investment outlets provided by fintechs.

We leave our forecasts unchanged because the reported Q3 2022 results aligned with our expectations. We also maintain our recommendation on the stock as a BUY, with a fair value of N31.11. We estimate a FY 2022 earnings per share forecast of N6.07 and a justified price-to-earnings multiple of 5.12x (versus 7-year historical average of 5.25x). We see a compelling investment opportunity in the stock based on its earnings yield of 35% and a one-year dividend yield of 17%.

The stock trades at a 94% discount (including a one-year dividend yield) to our estimated fair value, evidenced by the stock’s 2.89x forward price-to-earnings multiple and price-to-book of 0.69x – relative to our estimated justified price-to-earnings multiple of 5.12x and price-to-book of 0.93x.

Please follow the link “Guaranty Trust HoldCo Q3 2022 – Rising Interest Rates Dominate Performance” to view the whole report.

Thank you.