GT Bank shares has evidently being one of the most volatile stock of February 2014. It hit a month low of N17 and closed a month high N23.5. Whilst we await any more market intelligence regarding the stock, attention will continue to be focused on the share price and whether it will continue to rise or drop as we approach the elections. Predicting stock price movement is one of the most difficult things to do, however we can conduct a few analysis to determine whether now is the time to buy or not.
Fundamental Analysis (Long term view)
GT Bank is perhaps on track to end the financial year ended December 2014 with a drop in earnings as the company faced up to cost increases and tighter regulatory headwinds that occurred all through 2014.
GT Bank’s latest results for the 9 months ended September 2014 showed Gross Earnings rose 5% to N192.2billion. Profit after tax however dropped by 3.61% to N66.7billion and earnings per share dropping in tandem to N2.35. The company in our view, will probably declare a profit after tax of between N83billion to N89billion which could result in our consensus earnings per share of N3.1. We also project a final dividend announcement of about N1.45 essentially sticking to the same pay out same period last year. Based on this, we believe a price not more than N24 is an ideal price for buying GTB shares if we were to hold for the long term. This price fits into our suggested price earnings ratio of no more than 8x.
On whether the shares will rise or drop this week, we believe volatility still remains. An absence of any market intelligence such as release of results, dividends etc. will surely see profit takers sell down, driving the shares further down. We have a 85% opinion that the share price will drop further this week which strengthens its long term conviction for a buy.
Technical Analysis (short term view)
GT Bank completed a double bottom chart formation after bouncing off the NGN 17 level (on 13-Feb-15) and has rallied for the last 10 trading days returning more than 32% (log return basis). Price action on 27-Feb-15 crossed and closed above the 100-day moving average asserting the veracity of the trend reversal. The Relative Strength Index (RSI) is currently printing at 63.93 and could trend higher towards 70 confirming the strength and momentum of the trend reversal.
After a 10-day strong rally,
- There’s a 75% probability that a weak correction will commence in the coming trading week (as soon as Tuesday); considering that this is a strong possibility, it makes sense to be sensitive to the 23% to 50% Fibonacci Retracement lines and resume buying activities at the corresponding price levels;
- There’s a 25% probability that price action will continue with the already strong momentum gathered (RSI > 50 currently)and continue towards the 200-day moving average, breaking it on the upside before a stronger correction commences.
That said, GTBank is an interesting to watch out for in the coming trading week.
Ugodre Obi-Chukwu/ Obinna “Dexter” Ajoku