Stellar Q1’24 financial performance rode on fair value gains
The unaudited Q1'24 results for GTCO revealed a 4.4x growth in earnings to N457.1 billion. Core earnings (interest income) contributed c.N281.7 billion to this earnings after advancing by 170.6% YoY on the back of improved asset yields (+5.0 ppts YoY to 14.0%) and a 43.9% increase in interest-earning assets (IEA) to N9.5 trillion from FY'23. Money market placements were a primary fulcrum for the IEA expansion, while the elevated yield environment drove asset yield. Hence, the consequent robust interest income growth masked the 147.9% surge in interest expense and drove net interest income to N227.3 billion (+176.7% YoY).
We now expect FY'24 earnings to rise by c.55.0%
Based on the Q1'24 results and subsequent disclosures from management, we now project a 55.0% increase in earnings to N836.5 billion for FY'24. This new earnings projection represents a 35.3% increase from our previous projection and is higher than GTCO's N806.0 billion guidance. Our more sanguine outlook also reflects adjustments for the current run rate of NIR, which was buoyed by the N331.6 billion fair value gain on financial instruments in Q1'24. As previously highlighted, this gain and potential associated changes in the line item may reflect the effect of the unwinding of c.N100 billion net long FCY position, the revaluation of N800 billion dollar-denominated equity investment, and potential net gains on derivative assets.
Valuation
Adjustments to our model resulted in a 12-month target price of N74.02, a 6.8% increase from our previously communicated target price (TP). GTCO is trading at a P/B of 0.6x, a steep discount to its 10-year mean of 1.4x and EMEA peer average of 0.9x. We retain our BUY recommendation, with our TP translating to an exit P/B of 1.0x.
