Analysis: Is GTCO a Buy, a Hold, or a Sell? 

Guaranty Trust Holding Company (GTCO) is one of the leading financial institutions in Nigeria and one of the quintet largest commercial banks in the country aka FUGAZ.

The year 2023 was a fantastic year for the tier 1 bank with the share price gaining 76% and closing at N40.50.

The year 2024 has not been as sizzling as 2023 however it is up 16.74% year to date and one of the best performing FUGAZ stocks this year, closing last week at N47.35 per share.  

This elevated the market capitalization to N1.39 trillion, ranking it as the most capitalized banking stock.

Despite currently trading below its 52-week high of N53.05 (reached on April 2, 2024), GTCO is still above this year’s average price of N42 and its 5-year average of N28.

This performance suggests strong investor confidence and positive sentiment towards the stock, mostly based on financial performance.

Financial Performance

The group reported a pre-tax profit of N609.308 billion in 2023 compared to N214.154 billion in 2022.  The bank followed this in the first quarter of 2024 with a pre-tax profit surged by 587% year-over-year to N509.349 billion, which is more than half of the 2023 figure.

Commercial banks are not only rated for their bottom line performances especially from a regulatory stand point. One of the most important regulatory prudential ratios is the capital adequacy ratio (CAR) which the central bank set at 15%.

GTCO surpasses it posting a CAR of 21.08%. The bank has set a target of 24.5% in 2024 indicating a proactive strategy to strengthen its financial stability and resilience against potential losses.

Additionally, the bank has proposed a N500 billion capital raising initiative detailed in the June 11, 2024, Red Herring Prospectus, set to launch in July. This initiative aims to bolster the CAR, support strategic growth, and meet the new N500 billion capital requirements mandated by the Central Bank of Nigeria (CBN).

GTCO is required to raise additional equity capital of N361.813 billion to meet the new capital requirement of N500 billion set by the Central Bank of Nigeria (CBN) for banks.

These impressive figures raise the question: is the stock properly priced to reflect the fundamentals?

Valuation Analysis

As stated earlier, GTCO is set to embark on a right issue where it is expected to raise capital to meet the recapitalization targets of the central bank.

Whilst details are not yet out (as of the time of penning this article), a key point of interest will be the share price that the right issue will be sold.

The stock closed the week at N47.35 per share and is one of the most priced banking stocks in the country. So, is this fairly priced?

One of the most popular valuation metrics is price to earnings ratio (P.E) , which measures the share price of a stock as a multiple of its earnings. The closer this figure is to one or below one, the cheaper the stock.

Using GTCO current share price of N47.35 and its trailing twelve months earnings per share (EPS) of N33.27, the stock has a P.E ratio of 1.4x. This compares to the banking sector average of 2.91x.

  • This lower P/E ratio suggests that the stock is undervalued compared to its peers indicating that investors are paying less for each unit of earnings relative to other Banks.
  • This could be seen as an opportunity for investors if they believe that GTCO’s earnings will continue to grow.

Another valuation metrics is the price to earnings growth (PEG), which adjust the price to earnings ratio of the stock as a multiple of its earning growth.

Similarly a PEG below 1x suggest that the stock is undervalued relative to its earnings growth potential and thus may offer attractive growth at a reasonable price, which could be appealing to growth-oriented investors.

Boosted by its recent performances, GTCO has a PEG ratio of less than one, making it attractive for growth hungry investors.

Additionally, the group’s strong capital assets appear to be reflected in its higher price-to-book ratio of 0.70, compared to the banking sector average of 0.63.

  • This suggests that investors value each unit of GTCO’s book value more highly than that of its peers, possibly due to perceived higher asset quality or expectations of better future profitability.

The expectation of better future profitability also appears to align with its higher price to sales ratio of 0.82 compared to the sector average sector of 0.52x.

GTCO’s valuation metrics, including a low P/E ratio, a reasonable P/B ratio, and a relatively higher P/S ratio, combined with a very low PEG ratio, suggest that it might be an attractive investment, especially for those looking for growth opportunities at a reasonable price.  

Besides valuation dynamics, GTCO is known for its dividend payouts. In 2023, it paid a dividend per share of N3.2, marking a 3.23% increase from the previous year.  The stock currently has a dividend yield of 6% based on its current share price but this could likely increase as we expect the bank to increase its dividend payout ratio.

Continuing this trend, the bank is expected to declare an interim dividend for the recently ended half-year, enhancing its appeal as an investment, especially for income-oriented investors.

Overall, investors should consider other factors such as market conditions, the bank’s strategic initiatives, and broader economic factors before making an investment decision.







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