Guarantee Trust Bank (GTB) recently took a bold step in its expansionary efforts by transitioning to a holding company (Holdco) structure – just as some of its peers have done over the years. More so, its bold rebranding efforts will make it hard for anyone to miss Guaranty Trust Holding Company (GTCO).
The transition from its previous commercial banking structure to the diversification of its operations across sectors together with its listing on the Nigerian Exchange (NGX) and the London Stock Exchange is expected to propel the next phase of its growth. Not only will it maximize its market value/share, but it also goes on to position the group at the heart of its vision to be one of the top financial institutions on the African continent.
Read: Analysis: GTB is minting profits but CBN is squeezing its cash
6th largest by market cap, the group’s performance in the first half of the year was, however, underwhelming and lower than analyst projections. Profit witnessed a 15.8% year-on-year decline, yielding N79 billion. In its recently released Q3 results, the fall in profits over a 9-month period came at 9%. This came as a result of the fall in Net interest income of 141% in Q3 to N162.9 billion from a year earlier. This could be attributed to a reduction in interest income earned in its major source of operations, Nigeria, amongst others:
On one hand, the expansionary measures coming right after the all-but-expected COVID-19 pandemic as well as its many lingering economic effects were reflected in its results. In Q3 alone, operating expenses increased by 42% to N13 billion in the quarter. Even more worrisome was its investment securities at Fair Value Through Other Comprehensive Income (FVOCI), which shrunk by a whopping 278% at the end of Q3 from a positive N10.1 billion to a negative of N18 billion in Q3 2021. This came as a result of fair value adjustments to debt securities through other comprehensive income. With Nigerian banks subject to a high reserve requirement of 27.5% by the CBN, more than a quarter of their deposits are also not accessible. Year-to-date, the share price has shed around 15.15% but GTCO’s investors still believe in its growth potential. Sometimes, that’s all that really matters.
Read: ZENITH, GTCO lose combined N6.18 billion on NGX bearish performance
The opportunities GTCO’s investors see
In truth, we expect better earnings following its efforts in improving loan recoveries amongst others. In the period under review, GTCO witnessed improved liquidity. There was a 21% increase in Interest income earned outside Nigeria – a sum of N33.9 billion, in H1 2021. With the local banking market being very punitive, it’s only natural that the decision to go elsewhere also came as a result of Nigeria’s regulatory climate. The steady growth of the non-Nigerian market is, however, also testament to the long-term opportunities that could arise from its pan-African operations.
A HoldCo structure also allows the group to effectively diversify its revenue lines, grow earnings, and increase shareholder returns on investment. Additionally, a holding company is crucial to Segun Agbaje-led GTB’s strategy for weathering stormy days. Through Payment Service Banking (PSB), Asset Management and Pension Fund Administration (PFA), GTCO gets to diversify its businesses without compromising on its core banking operations.
Read: Why Innoson can’t takeover GT Bank
The group in recent times has been forced to rethink its strategy and operating models due to a changing competitive landscape and the slowdown in the traditional banking business. We expect the holding company to put in place solid expansion strategies for its asset management business and pension arms. And as far as that is concerned, its pool of employees and customer base already has it positioned to penetrate the pensions market with relative ease.
The Tier 1 bank is trading slightly above midpoint of its 52-week low at N27.45 (52-week low: 26.95) and investors’ sentiment of the probable growth remains punctuated by lower-than-expected profit margins. Institutional investors, however, still expect that the stock will increase in long-term value. There are plans to change the tide by securing a payment service license and launching a fintech unit. It also hopes to acquire a bank in Kenya, the largest economy in East Africa. Yet, while its prospects are none-the-less great, investors could still grow weary unless its performance speedily improves.
I am surprised you didn’t mention the cloud of uncertainty hanging over GTCO due to the long running legal wrangling with the CEO of Innosson Motors. Investors don’t like uncertainty, as long as that issue remains unresolved, some investors will stay away from GTCO shares. In terms of Corporate strategy, has management carefully considered who has the most to lose in this legal tussle on the long term? Some would argue that the duration of the case has reinforced the perception that ego, rather than careful strategic reasoning has gotten in the way. To cite an African proverb “If a mad man challenges you to a wrestling match in the market square, do not accept the offer. Because in five minutes, people will not be able to tell the difference between the two of you”
GTCO has a stellar record of brilliant organic growth strategy and disciplined execution. However, ego can trump the most wonderful ideas and intentions.
GTCO has been a disappointment and it begs the question if the current chairman/former CEO is worthy of his new role in the group. Access bank have been working towards a better future instead of been reactionary. As a GTCO shareholder its been a humbling year with over 15% already lost. Hopefully it’s just a passing storm.