Saturday, June 10

Why now is the best time to buy GTCO shares

Guaranty Trust Holding Company (GTCO) recently got pipped by Zenith Bank as the bank stock with the highest share price. Last December, Zenith Bank also blew past GTCO as the most valuable commercial bank in Nigeria topping N800 billion in market cap while GTCO slid to N745 billion. GTCO used to be valued above a trillion a few years ago.

Since the company transformed into HoldCo it has struggled with a number of fundamental issues. Operating expenses have increased of late while interest margins have plummeted in tandem. The bank is likely to close the year with lower earnings per share compared to the year before.

In 2020, GTCO closed with an earnings per share of N7.11, its highest ever despite being a year marred by the pandemic. Since then, the company has faced earnings pressures as the central bank tightened liquidity amidst a hike in interest rates. We anticipate GTB will close at earnings per share of between N6.6-N6.9 this year, its first major slide in earnings growth in years. However, it still places it as the second most profitable bank in the country with earnings more than the net assets of some banks.

At the current price of N25.2, we rate GTCO cheap and highly recommend it for a buy for the following reasons:

  • GTCO remains one of the highest dividends-paying banks, paying out over 40% of profits annually. Most Nigerian banks payout is between 15% and 25% annually despite churning out single-digit returns on average equity.
  • GTCO on the other hand has delivered double-digit returns on average equity annually for about a decade. Yet, it pays out an impressive dividend as a percentage of profits.
  • At the current price, GTCO indicative dividend yield is about 12%, assuming it pays out a projected N2.7 per share this year.
  • A 12% dividend yield is one of the best out there.
  • Secondly, reliable sources inform us that a major reason for the selloffs seen in recent weeks is because there is a major holder of GTCO’s stock placing millions of the units on offer.
  • Temporary factors like this always present a buying opportunity for stocks.
  • Target exit N35, 12 months hold.

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