CMP/JUN/2024/0014
نﻼﻋإ
Announcement
Date | 06/06/2023 | ﺦﯾرﺎﺗﻟا | |||||||
Company Name | .ب.م.ش ﺔﯾﻟﺎﻣﻟا شﺗإ فإ ﻲﺟ ﺔﻋوﻣﺟﻣ | ﺔﻛرﺷﻟا مﺳإ | |||||||
GFH Financial Group B.S.C. | |||||||||
Trading Code | GFH | لوادﺗﻟا زﻣر | |||||||
Subject | شﺗا فا ﻲﺟ نﻋ لﺎﺗﯾﺑﺎﻛ مﺎﻗرأ نﻣ ردﺎﺻﻟا ﺔﯾطﻐﺗﻟا رﯾرﻘﺗ | عوﺿوﻣﻟا | |||||||
Arqam Capital Coverage report on GFH | |||||||||
ﺎﻣﻛ ،*ﺔﯾﻟﺎﻣﻟا شﺗإ فإ ﻲﺟ ﺔﻋوﻣﺟﻣ مﮭﺳﻷ ﺔﯾﻠﯾﻠﺣﺗﻟا ﺔﯾطﻐﺗﻟا رﯾرﻘﺗ لﺎﺗﯾﺑﺎﻛ مﺎﻗرأ تردﺻأ | |||||||||
.ﻖﻓرﻣ وھ | |||||||||
نﯾﻠﻠﺣﻣ نﻣ ﺔﻣدﻘﻣ لﺎﻛﺷﻷا نﻣ لﻛﺷ يﺄﺑ ءارآ وأ/و تﺎﻌﻗوﺗو تارﯾدﻘﺗو تﺎﯾﺻوﺗو نﯾﻠﻠﺣﻣﻠﻟ ﺔﯾطﻐﺗ يأ * | |||||||||
.نﯾﻠﻠﺣﻣﻟا ءﻻؤھ يأر لﺛﻣﺗو طﻘﻓ ﺔﯾﻣﻼﻋإ ضارﻏﻷ ﺎھرﯾﻓوﺗ مﺗﯾ (تﺎﯾﺻوﺗﻟا) هﺎﻧدأ نﯾﺑﻣﻟا وﺣﻧﻟا ﻰﻠﻋ نﯾﯾﺟرﺎﺧ | |||||||||
وأ ﺎﯾﻌﻠطﺗً ﺎًﻧﺎﯾﺑ وأ تﺎﻌﻗوﺗ وأ ﺎﯾأرً وأ اًدﯾﯾﺄﺗ ،ﻲﻧﻣﺿ وأ ﺢﯾرﺻ لﻛﺷﺑ ءاوﺳ ،ﺎﻧھ ةروﺷﻧﻣ ﺔﯾﺻوﺗ يأ لﻛﺷﺗ ﻻ | |||||||||
.رﯾﯾﻐﺗﻠﻟ ﺔﻠﺑﺎﻗو ةرﻣﺗﺳﻣﻟا ﺔﻌﺟارﻣﻟا دﯾﻗ تﺎﯾﺻوﺗﻟا .ب.م.ش ﺔﯾﻟﺎﻣﻟا شﺗإ فإ ﻲﺟ ﺔﻋوﻣﺟﻣ نﻣ ﺔﯾﻟﺎﻣ ةروﺷﻣ | |||||||||
Information | Arqaam Capital issued Analyst Coverage Report on GFH shares*. | ﺔﻣوﻠﻌﻣﻟا | |||||||
Please refer to the attached report. | |||||||||
*Any analyst coverage, recommendations, estimates, forecasts and/or opinions in any form | |||||||||
whatsoever provided by third party analysts as set out below (the Recommendations) are | |||||||||
provided for informational purposes only and represent the opinion of such analysts. Any | |||||||||
Recommendation reproduced herein does not constitute, either expressly or impliedly, an | |||||||||
endorsement, opinion, forecast, forward looking statement or financial advice by GFH | |||||||||
Financial Group BSC. The Recommendations are under continuous review and subject to | |||||||||
change. | |||||||||
Expected Financial | ﻖﺑطﻧﯾ ﻻ | ﻊﻗوﺗﻣﻟا ﻲﻟﺎﻣﻟا رﺛﻷا | |||||||
Impact | Not Applicable | ||||||||
Name | Mariam Jowhary | يﺮھﻮﺟ ﻢﯾﺮﻣ | ﻢﺳﻹا | ||||||
Title | Head of Compliance & AML | لاﻮﻣﻻا ﻞﺴﻏ ﺔﺤﻓﺎﻜﻣو ماﺰﺘﻟﻹا ﺲﯿﺋر | ﻲﻔﯿظﻮﻟا ﻰﻤﺴﻤﻟا | ||||||
Company Seal ﺔﻛﺮﺸﻟا ﻢﺘﺧ | Signature ﻊﯿﻗﻮﺘﻟا | ||||||||
GFH Financial Group
EPS growth continues as the treasury and proprietary segment picks up, while the IB segment remains resilient.
- In Q1, the strong performance was supported mainly by the income stemming from treasury and proprietary segment, up by c. 4x y/y, despite higher OpEx and impairment charges.
- The IB segment remains a key contributor to revenue generation, but income was only up by 2.4% y/y, while the commercial banking segment (-2.2% y/y) continues to be impacted by higher CoF. EPS still grew by 24% y/y and 25% q/q, yielding a RoE of 11.3% (vs 9.8% in Q1 23).
- The balance sheet was down by 5% YtD mainly due to the sale of real estate assets, with AUMs of USD20.6bn as of Q1 24 (vs. 21.1bn at YE 23).
- Maintain BUY on broad-based RoE expansion, de-risking, and growing AuM base. The stock trades at P/tNAV 24e of 1.1x while offering RoE of 11.4%. Next catalyst: Potential listing in KSA, expanding IB platform, and recovering commercial banking performance.
We pencil in an EPS CAGR of 16% for FY23-28e,with RoE expanding from 9% in FY22 to 16% in FY28e. EPS grew by 24% y/y mainly thanks to higher income from the treasury and proprietary segment, up by c. 4x y/y, through a significant surge in direct investment income (USD 59m in Q1 24 vs. USD 3m in Q1 23) and the sale of assets, primarily real estate (USD 10m vs. USD 0.1m). The IB segment remains a crucial support to revenue generation, accounting for 28% of the total in Q1 24, although growth was limited to 2.4% y/y. Finally, the commercial banking segment, representing 24% of total revenue generation in Q1, was down by 2.2% y/y as higher CoF amidst an elevated rate environment offsets higher interest income. Total income jumped by 55%, though it was partially offset by higher other OpEx (+50% y/y) and impairment charges ($14m vs. $0.6m).
Ambitious targets on track. GFH continues to expand its assets and AUM base, reaching USD 20.6bn in Q1 24 vs. 17.6 in FY22. GFH is on track to achieve its USD 25bn target by YE25e, through organic and inorganic growth, reflected by the launch of GFH Partners, a dedicated global real estate investment arm currently USD 6bn in assets across US and Europe. The momentum in the IB segment is resilient, with five investment banking deals successfully closed in Q1 24 (total fund size of over USD 200m). We expect a revenue CAGR FY24-28e of 12%, an operating profit growth of 19%, and EPS CAGR of 17%, with RoE gradually improving from 10.4% in FY23 to 15.8% in FY28e and RORWA from 1.98% to 2.39%.
De-riskedstrategy. GFH cut its real estate portfolio (23.6% of assets in FY 21 to 10.7% in Q1 24A). The group plans to improve return generation by enhancing existing business lines through ii) refocusing on financial assets across the rest of the group, iii) enhancing Khaleeji's asset base, iv) expanding treasury operations and investment banking, and v) expanding international footprint.
Slight contraction in the asset base (mainly due to RE sales). The asset base declined by 5% YtD on contracting treasury portfolio and investment in real estate, down by 12% and 18% YtD, respectively, and sales of assets (USD 338m, mostly RE). This is reflected by a reduction in funding from financial institutions, down by 24% YtD. GFH targets to grow the AuM base to USD 25bn through organic/inorganic growth, focusing on recession-proofsectors and high-growthregional and global markets.
C o m p a n y R e p o r t
J u n e 6 2 0 2 4
Jaap Meijer, MBA, CFA
jaap.meijer@arqaamcapital.com +971 4 507 1744
Ribal Hachem
ribal.hachem@arqaamcapital.com +971 4 507 1919
BUY | USD 0.41/ AED 1.51/ Kwd 0.13 | ||||||||
Banks / BAHRAIN | |||||||||
Bloomberg code | GFH BI/ GFH UH/ GFH KK | ||||||||
Market index | Bahrain Brse/ DFM/ ADX/ Boursa Kuwait | ||||||||
Target Price | USD 0.41/ AED 1.51/ Kwd 0.13 | ||||||||
Upside (%) | 33.3 | ||||||||
Market data | 6/3/2024 | ||||||||
Last closing price (USD) | 0.31 | ||||||||
52 Week range | 0.2-0.3 | ||||||||
Market cap (USD m) | 1,180 | ||||||||
Free float (%) | 92% | ||||||||
Year-end (local m) | 2022 | 2023 | 2024e | 2025e | |||||
Revenue | 221 | 273 | 294 | 334 | |||||
Pre-provisioning profit | 73 | 91 | 116 | 147 | |||||
EPS | 0.02 | 0.03 | 0.03 | 0.04 | |||||
P/E (x) (mkt price) | 13.2 | 11.6 | 10.2 | 8.5 | |||||
BVPS | 0.3 | 0.3 | 0.3 | 0.3 | |||||
Tangible BVPS | 0.3 | 0.3 | 0.3 | 0.3 | |||||
P/B (x) (mkt price) | 1.2 | 1.2 | 1.1 | 1.1 | |||||
P/TBVPS (x) (mkt price) | 1.2 | 1.2 | 1.1 | 1.1 | |||||
DPS | 0.02 | 0.02 | 0.02 | 0.02 | |||||
Div. yield (%) | 5.1 | 5.1 | 5.5 | 6.4 | |||||
RoAA (%) | 1.0 | 1.0 | 1.0 | 1.1 | |||||
RoRWA (%) | 1.2 | 2.0 | 1.7 | 1.9 | |||||
RoATE (%) | 9.2 | 10.4 | 11.4 | 12.9 | |||||
RoEcC (%) | 9.7 | 14.0 | 12.9 | 14.6 | |||||
RAROC (%) | 9.4 | 14.0 | 12.9 | 14.9 | |||||
Net LtD ratio (%) | 106.7 | 42.1 | 43.0 | 42.9 | |||||
Risk Weighted Assets | 7.3 | 5.2 | 6.9 | 7.4 | |||||
(bn) | |||||||||
Core Equity T1 ratio (%) | 13.9 | 19.6 | 17.1 | 17.0 | |||||
Tier 1 capital ratio (%) | 14.0 | 19.7 | 17.2 | 17.1 | |||||
Total capital ratio (%) | 14.7 | 21.0 | 18.1 | 18.0 | |||||
NPL ratio (%) | 3.5 | 7.9 | 8.0 | 8.0 | |||||
Coverage ratio (%) | 124.4 | 56.8 | 56.6 | 58.7 | |||||
Number of shares | 3,833 | 3,833 | 3,833 | 3,833 |
Price Performance
127 | GFH BI | Bahrain Brse | |
119 | |||
111 | |||
103 | |||
95 | |||
87 | |||
79 | |||
May/23 | Aug/23 | Nov/23 | Feb/24 |
© Copyright 2024, Arqaam Capital Limited. All Rights Reserved. See Important Notice.
June 6 2024
Abacus Arqaam Capital Fundamental Data
Profitability
3% | 2.32% | 2.45% | |||
2.00% | |||||
1.76% | 1.68% | ||||
2% | |||||
2.28% | |||||
1.01% | 1.98% | 1.90% | 2.18% | ||
1.69% | |||||
1% | |||||
1.24% | 0.20% | 0.17% | 0.20% | 0.20% | 0.20% |
0.10% | |||||
0% | |||||
FY22A | FY23A | FY24e | FY25e | FY26e | FY27e |
PPP/RWA | Cost of risk/RWA | RORWA |
NIM
1.0% | ||||||
0.5% | ||||||
0.0% | 0.40% | |||||
-0.5% | FY23A | FY24e | FY25e | FY26e | FY27e | |
FY22A | ||||||
-1.0% | -0.52% | -0.32% | ||||
-1.5% | ||||||
-2.0% | -1.35% | |||||
-2.5% | -2.02% | -1.78% | ||||
Net interest margin |
Credit Quality
65% | 10.0% | |||||||
60% | 8.0% | |||||||
6.0% | ||||||||
55% | 4.0% | |||||||
2.0% | ||||||||
50% | 0.0% | |||||||
FY24e | FY25e | FY26e | FY27e | |||
NPL Cov ratio (%) | NPL as % of tot loans | |||||
Capital Ratios | ||||||
30% | 21.0% | |||||
18.1% | 18.0% | 18.0% | 18.0% | |||
14.7% | ||||||
20% | ||||||
0.20 | 0.17 | 0.17 | 0.17 | 0.17 | ||
10% | 0.14 | |||||
0% | ||||||
FY22A | FY23A | FY24e | FY25e | FY26e | FY27e | |
Core Tier 1 (Base III) | CAR | |||||
Growth | ||||||
200% | ||||||
150% | ||||||
100% | 172% | |||||
50% | 9% | 7% | 8% | 8% | 8% | 8% |
0% | ||||||
-50% | FY22A | FY23A | FY24e | FY25e | FY26e | FY27e |
-10% | 6% | 8% | 8% | 8% | ||
Loan growth | Deposit growth |
GFH Financial Group
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Performance analysis | ||||||
Net Interest Margin (%) | 0.40 | (2.02) | (1.78) | (1.35) | (0.52) | (0.32) |
Asset yield (%) | 4.38 | 5.07 | 4.50 | 4.30 | 4.10 | 4.10 |
Cost of Funds (%) | 1.38 | 1.97 | 1.50 | 1.40 | 1.20 | 1.20 |
Risk Adjusted Margins (%) | 0.08 | (2.50) | (2.36) | (1.99) | (1.13) | (0.91) |
Cost / Income (%) | 66.9 | 66.6 | 60.6 | 55.9 | 52.2 | 50.8 |
Net Interest Income / total income (%) | 3.9 | (15.6) | (12.2) | (9.2) | (3.5) | (2.2) |
Fees & Commissions / operating income (%) | 4.2 | 10.0 | 10.2 | 9.9 | 9.5 | 9.5 |
Trading gains / operating income (%) | 73.3 | 91.3 | 87.5 | 85.2 | 80.5 | 79.2 |
RoATE (%) | 9.2 | 10.4 | 11.4 | 12.9 | 14.7 | 15.2 |
Pre-prov. RoATE (%) | 9.8 | 11.4 | 12.3 | 13.8 | 15.4 | 16.0 |
RoAA (%) | 1.0 | 1.0 | 1.0 | 1.1 | 1.3 | 1.3 |
Revenue / RWA (%) | 3.04 | 5.26 | 4.26 | 4.54 | 4.86 | 4.99 |
Costs / RWA (%) | 2.03 | 3.50 | 2.58 | 2.54 | 2.54 | 2.54 |
PPP / RWA (%) | 1.01 | 1.76 | 1.68 | 2.00 | 2.32 | 2.45 |
Cost of Risk / RWA (%) | 0.10 | 0.20 | 0.17 | 0.20 | 0.20 | 0.20 |
RoRWA (%) | 1.24 | 1.98 | 1.69 | 1.90 | 2.18 | 2.28 |
RoRWA (%) (adj. for gross-up of associates) | 1.24 | 1.98 | 1.69 | 1.90 | 2.18 | 2.28 |
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Asset Quality | ||||||
Provisions charge / avg. gross loans (%) | 0.5 | 0.7 | 0.7 | 0.8 | 0.8 | 0.8 |
Past due not impaired / gross loans (%) | 4.8 | 4.0 | 4.1 | 4.2 | 4.3 | 4.5 |
NPL / gross loans (%) | 3.5 | 7.9 | 8.0 | 8.0 | 8.0 | 8.0 |
NPL coverage ratio (%) | 124.4 | 56.8 | 56.6 | 58.7 | 60.9 | 63.2 |
Provisions / avg. gross loans (%) | 4.8 | 4.0 | 4.1 | 4.2 | 4.3 | 4.5 |
Provisions charge / operating income (%) | 9.5 | 11.2 | 10.1 | 9.8 | 8.6 | 8.2 |
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Funding and Liquidity | ||||||
Net Loans / Deposits (%) | 106.7 | 42.1 | 43.0 | 42.9 | 42.8 | 42.7 |
Cash and interbank / assets (%) | 8.8 | 3.4 | - | (1.9) | (3.5) | (5.1) |
Deposits / liabilities (%) | 15.5 | 36.4 | 35.5 | 35.5 | 35.5 | 35.5 |
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Capital and leverage ratios | ||||||
Core Tier 1 ratio (Basel III) (%) | 13.9 | 19.6 | 17.1 | 17.0 | 17.1 | 17.1 |
Tier 1 ratio (%) | 14.0 | 19.7 | 17.2 | 17.1 | 17.2 | 17.2 |
Total capital ratio (%) | 14.7 | 21.0 | 18.1 | 18.0 | 18.0 | 18.0 |
Tangible equity / assets (%) | 11.0 | 9.7 | 9.5 | 9.4 | 9.5 | 9.4 |
RWA / assets (%) | 74.6 | 46.6 | 57.4 | 56.7 | 56.1 | 55.5 |
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Growth | ||||||
Revenues (%) | (15.5) | 23.2 | 7.7 | 13.8 | 14.4 | 9.8 |
Cost (%) | 10.8 | 22.6 | (2.0) | 5.0 | 6.9 | 6.9 |
Pre-Provision Operating Profit Growth (%) | (42.8) | 24.3 | 27.0 | 27.3 | 23.9 | 12.9 |
Provisions (%) | (57.7) | 47.2 | 14.7 | 23.4 | 8.0 | 8.0 |
Net Profit (%) | 7.2 | 14.0 | 13.1 | 20.0 | 22.7 | 12.1 |
Assets (%) | 20.7 | 13.9 | 8.0 | 8.0 | 8.0 | 8.0 |
Loans (%) | 9.5 | 7.1 | 7.9 | 7.8 | 7.8 | 7.8 |
Deposits (%) | (9.8) | 171.7 | 5.7 | 8.0 | 8.0 | 8.0 |
Risk Weighted Assets (%) | (11.9) | (28.9) | 33.0 | 6.7 | 6.8 | 6.9 |
GFH Financial Group | © Copyright 2024, Arqaam Capital Limited. All Rights Reserved. See Important Notice. | 2 |
June 6 2024
Abacus Arqaam Capital Fundamental Data
Company Profile
GFH is a Bahrain-domiciledSharia-compliant financial group that is focused on investment banking, treasury activities, commercial and retail banking in Bahrain via Khaleeji Bank BSC (Khaleeji) and proprietary investments.
GFH Ratings affirmed by Fitch at "B"; Outlook stable. GFH is listed on four stock exchanges.
Geographical breakdown
11% | ||
0% | 5% | |
4% | GCC | |
MENA | ||
Asia | ||
North America | ||
Other | ||
80% |
Revenue Breakdown
24%
GFH Financial Group
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Income statement (USDmn) | ||||||
Interest income | 95 | 107 | 91 | 97 | 105 | 118 |
Interest expense | 86 | 149 | 127 | 128 | 118 | 128 |
Net Interest Income | 9 | (42) | (36) | (31) | (13) | (9) |
Fee income | 9 | 27 | 30 | 33 | 36 | 40 |
Net investment income | 43 | 29 | 54 | 66 | 71 | 77 |
Other operating income | 160 | 259 | 245 | 266 | 288 | 312 |
Total operating income | 221 | 273 | 294 | 334 | 382 | 419 |
Total operating expenses | 148 | 181 | 178 | 187 | 199 | 213 |
Pre-provision operating profit | 73 | 91 | 116 | 147 | 183 | 206 |
Net provisions | 7 | 10 | 12 | 14 | 16 | 17 |
Other provisions / impairment | (4) | 10 | 4 | 4 | 5 | 5 |
Operating profit | 70 | 71 | 100 | 128 | 162 | 184 |
Associates | 28 | 35 | 20 | 20 | 20 | 20 |
Pre-tax profit | 98 | 105 | 120 | 148 | 182 | 204 |
Taxation | - | - | - | - | - | - |
Net profit | 98 | 105 | 120 | 148 | 182 | 204 |
Minorities | 7 | 2 | 4 | 9 | 11 | 12 |
Others | - | - | - | - | - | - |
Attributable net profit | 90 | 103 | 116 | 140 | 171 | 192 |
Diluted EPS | 0.02 | 0.03 | 0.03 | 0.04 | 0.04 | 0.05 |
DPS | 0.02 | 0.02 | 0.02 | 0.02 | 0.03 | 0.03 |
BVPS | 0.26 | 0.26 | 0.27 | 0.29 | 0.32 | 0.34 |
Tangible BVPS | 0.26 | 0.26 | 0.27 | 0.29 | 0.32 | 0.34 |
Investment Banking | |
Commercial Banking | |
54% | Treasury & Prop |
21%
Management | |
CEO | Hisham Ahmed Al Rayes |
CFO | Suryanarayanan Hariharan |
COO | Salah Abdulla Sharif |
Major Shareholders | |
Keypoint Trust | 6.13% |
Year-end | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e |
Balance sheet (USDmn) | ||||||
Gross loans and advances | 1,500 | 1,609 | 1,738 | 1,877 | 2,027 | 2,189 |
Less: loan loss provisions | 64 | 72 | 79 | 88 | 99 | 111 |
Net loans and advances | 1,435 | 1,537 | 1,659 | 1,789 | 1,928 | 2,079 |
Cash and central bank | 858 | 377 | 456 | 616 | 790 | 979 |
Due from banks | - | - | - | - | - | - |
Investment, net | 6,644 | 7,806 | 8,420 | 8,984 | 9,593 | 10,251 |
Fixed assets, net | 233 | 275 | 275 | 286 | 297 | 309 |
Other assets | 590 | 1,126 | 1,201 | 1,297 | 1,401 | 1,513 |
Total assets | 9,760 | 11,121 | 12,011 | 12,972 | 14,010 | 15,131 |
Customer deposits | 1,345 | 3,655 | 3,862 | 4,171 | 4,505 | 4,865 |
Due to banks | - | - | 460 | 861 | 1,281 | 1,743 |
Debt | 5,733 | 4,448 | 4,448 | 4,448 | 4,448 | 4,448 |
Other liabilities | 1,611 | 1,945 | 2,100 | 2,269 | 2,450 | 2,646 |
Total liabilities | 8,689 | 10,047 | 10,870 | 11,749 | 12,683 | 13,702 |
Total equity | 1,071 | 1,074 | 1,141 | 1,223 | 1,327 | 1,428 |
Risk Weighted Assets (bn) | 7 | 5 | 7 | 7 | 8 | 8 |
Average Interest-Earning Assets | 2,163 | 2,104 | 2,015 | 2,260 | 2,562 | 2,888 |
Average Interest-Bearing Liabilities | 6,216 | 7,590 | 8,436 | 9,125 | 9,857 | 10,645 |
Common shareholders | 997 | 990 | 1,045 | 1,120 | 1,215 | 1,307 |
Core Equity Tier 1 (Basel III) | 1,016 | 1,016 | 1,177 | 1,252 | 1,347 | 1,439 |
Tier 1 capital | 1,020 | 1,023 | 1,184 | 1,259 | 1,354 | 1,447 |
Jaap Meijer, MBA, CFA | Ribal Hachem |
jaap.meijer@arqaamcapital.com | ribal.hachem@arqaamcapital.com |
+971 4 507 1744 | +971 4 507 1919 |
GFH Financial Group | © Copyright 2024, Arqaam Capital Limited. All Rights Reserved. See Important Notice. | 3 |
June 6 2024
Improvement in stage 2 and 3 loans, though coverage remains inadequate. Nevertheless, the
impact remains limited as financing assets comprise 18% of overall assets. Stage 1, 2, and 3 loans make up 79%, 15%, and 6%, respectively, compared to 74%, 18%, and 8% at YE 23A. Stage 1, 2, and 3 loans coverage stand at 0.5%, 6.2%, and 35.3%, respectively, compared to 0.7%, 8.2%, and 30.6%, at YE 23A. We calculate a provision deficit of USD 53m vs. our standard stress test of 1% coverage on stage 1 loans, 12% on stage 2, and 60% on stage 3. However, the collateral as of YE 23A is substantial, with the average collateral coverage ratio on secured facilities at 148%.
Strong capital base with noticeable improvement in liquidity. GFH operates at a CET1 and CAR of 18.3% and 19.6%, respectively, compared to 14.0% and 14.7% at YE22, thanks to a drop in CRWA. Leverage stands at an asset/equity ratio of 9.7x, while net loan/equity is low at 1.7x. GFH reported an NSFR and LCR of 133% and 219%, respectively. The fair value of the real estate is USD 121m ahead of the book value as of YE 23.
Maintain BUY on earnings resilience thanks to a diversified business model. The stock trades at 1.1x P/tNAV24e and 10.2x P/E 24e while offering RoE of 11.4% and a 5Y EPS CAGR of 16%. Next catalyst: Potential listing in KSA, expanding IB platform and recovering commercial banking performance.
Exhibit 1: | GFH Q1 24 review table | ||||||||
USD mn | Q1 24A | Q4 23A | q/q 24 | Q1 23A | Q4 22A | q/q 23 | y/y Q1 | y/y Q4 | |
Revenue by segment | |||||||||
Invst. Banking | 46.2 | 35.1 | 31.5% | 45.1 | 20.4 | 120.8% | 2.4% | 71.9% | |
Commercial Banking | 34.2 | 19.7 | 73.4% | 25.5 | 17.1 | 48.9% | 34.3% | 15.4% | |
Treasury and prop. | 82.6 | 53.4 | 54.7% | 34.5 | 18.6 | 85.6% | 139.5% | 187.3% | |
Total Revenue | 163.0 | 108.2 | 50.6% | 105.1 | 56.1 | 87.2% | 55.1% | 92.9% | |
Expenses by segment | |||||||||
Invst. Banking | 33.2 | 35.3 | (5.8%) | 33.5 | 22.3 | 50.1% | (0.8%) | 58.0% | |
Commercial Banking | 24.2 | 25.1 | (3.8%) | 15.4 | 5.1 | 201.5% | 57.0% | 392.2% | |
Treasury and prop. | 61.4 | 16.8 | 265.5% | 31.1 | 5.5 | 463.0% | 97.7% | 204.4% | |
Total Expenses | 118.8 | 77.2 | 53.9% | 80.0 | 33.0 | 142.7% | 48.6% | 134.3% | |
Impairment allowance | 13.8 | 6.9 | 101.2% | 0.6 | -1.5 | (142.9%) | nm | (561.7%) | |
Net Income | 30.3 | 24.2 | 25.5% | 24.4 | 24.6 | (0.8%) | 24.2% | (1.9%) | |
Assets | 10,558 | 11,121 | (5.1%) | 10,401 | 8,520 | 22.1% | 1.5% | 30.5% | |
Liabilities* | 9,474 | 10,047 | (5.7%) | 9,343 | 7,478 | 24.9% | 1.4% | 34.4% |
Source: Company Data, Arqaam Capital Research *(incl. Equity of Invest. Account holders)
GFH Financial Group | © Copyright 2024, Arqaam Capital Limited. All Rights Reserved. See Important Notice. | 4 |
June 6 2024
Exhibit 2: Valuation Table: (USD m)
Year-end | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024e | 2025e | 2026e | 2027e | 2028e | perp | subtotal |
1. DCF | |||||||||||||||
Net profit | 217 | 107 | 114 | 66 | 45 | 84 | 90 | 103 | 116 | 140 | 171 | 192 | 214 | 220 | |
Other adjustments (comprehensive income and GW amortization) | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | |
Minus: excess return excess capital | 18 | 16 | 17 | 10 | 7 | 5 | 5 | 16 | 10 | 11 | 11 | 12 | 13 | 13 | |
Risk free rate | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | 4.00% | |
Tax shelter | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | |
Adjusted net profit | 199 | 91 | 97 | 56 | 38 | 79 | 85 | 87 | 106 | 129 | 160 | 180 | 201 | 206 | |
Capital requirements | 516 | 1,007 | 964 | 1,000 | 993 | 992 | 874 | 622 | 827 | 883 | 943 | 1,008 | 1,078 | 1,105 | |
RoEcC | 38.5% | 9.1% | 10.1% | 5.6% | 3.8% | 8.0% | 9.7% | 14.0% | 12.9% | 14.6% | 16.9% | 17.8% | 18.7% | 18.7% | |
Cost of capital | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | 13.0% | |
Capital charge | 67 | 131 | 125 | 130 | 129 | 129 | 114 | 81 | 108 | 115 | 123 | 131 | 140 | 144 | |
Economic profit | 132 | (40) | (28) | (74) | (91) | (50) | (29) | 6 | (1) | 14 | 37 | 49 | 61 | 63 | |
Discount factor | -- | -- | -- | -- | -- | -- | -- | -- | 1.00 | 0.88 | 0.78 | 0.69 | 0.61 | 0.54 | |
NPV of Economic Profit | -- | -- | -- | -- | -- | -- | -- | -- | (1) | 13 | 29 | 34 | 38 | 34 | |
DCF EVA Forecast period | 112 | ||||||||||||||
Perpetual growth rate (nominal GDP) | 2.5% | ||||||||||||||
Terminal Value | 598 | ||||||||||||||
Terminal value discounted | 325 | ||||||||||||||
Required Capital | 622 | ||||||||||||||
Value of the bank operations | 1,058 | ||||||||||||||
2. Capital surplus/deficit | |||||||||||||||
Available capital: | |||||||||||||||
Shareholders equity | 908 | 1,150 | 1,059 | 1,005 | 913 | 963 | 997 | 990 | 1,045 | 1,120 | 1,215 | 1,307 | 1,407 | ||
Minorities | 214 | 346 | 364 | 288 | 273 | 205 | 75 | 85 | 96 | 104 | 112 | 121 | 131 | ||
Less Goodwill & intangibles | (55) | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||
Less non equity elements reported shareholders equity | |||||||||||||||
Less Dividends (if included in reported equity) | (89) | (85) | (32) | (33) | (18) | (46) | (61) | (61) | (65) | (76) | (99) | (115) | (134) | ||
Tangible equity | 978 | 1,411 | 1,391 | 1,260 | 1,168 | 1,122 | 1,010 | 1,013 | 1,076 | 1,147 | 1,227 | 1,314 | 1,404 | ||
Capital needs | |||||||||||||||
RWAs (Basel III) | 4,299 | 8,388 | 8,031 | 8,330 | 8,272 | 8,268 | 7,285 | 5,182 | 6,895 | 7,360 | 7,861 | 8,402 | 8,986 | ||
Equity as % RWA | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | 12.0% | ||
Financial stakes | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- | ||
Capital Requirements | 516 | 1,007 | 964 | 1,000 | 993 | 992 | 874 | 622 | 827 | 883 | 943 | 1,008 | 1,078 | ||
Surplus capital | 462 | 404 | 427 | 260 | 175 | 130 | 136 | 392 | 249 | 264 | 284 | 305 | 326 | 392 | |
3. Other adjustments | |||||||||||||||
Real Estate hidden value | 122 | ||||||||||||||
Underprovisionning vs. arqaam acid test (conservative) | (53) | ||||||||||||||
Total adjustments | 69 | ||||||||||||||
4. Dividends | 65 | ||||||||||||||
Total Fair Value | 1,584 | ||||||||||||||
Fully diluted number of shares | 3,833 | ||||||||||||||
Fair value per share | 0.41 | ||||||||||||||
Current share price | 0.31 | ||||||||||||||
Upside | 33.3% | ||||||||||||||
Implied P/E (x) | 7.3 | 14.8 | 13.9 | 24.0 | 35.1 | 18.8 | 17.5 | 15.4 | 13.6 | 11.4 | 9.2 | 8.3 | 7.4 | ||
Implied P/tNAV (x) | 1.9 | 1.4 | 1.5 | 1.6 | 1.7 | 1.6 | 1.6 | 1.6 | 1.5 | 1.4 | 1.3 | 1.2 | 1.1 |
Source: Company Data, Arqaam Capital Research
GFH Financial Group | © Copyright 2024, Arqaam Capital Limited. All Rights Reserved. See Important Notice. | 5 |
June 6 2024
Important Notice
1. Author, regulator and responsibility
Arqaam Capital Limited ("Arqaam") is incorporated in the Dubai International Financial Centre ("DIFC") and is authorised and regulated by the Dubai Financial Services Authority ("DFSA") to carry on financial services in
and from the DIFC. Arqaam publishes and distributes (i.e. issues) all research.
Arqaam Capital Research Offshore s.a.l. is a specialist research centre in Beirut, Lebanon, which assists in the production of research issued by Arqaam.
2. Purpose
This document is provided for informational purposes only. Nothing contained in this document constitutes investment, legal, tax or other advice or guidance and should be disregarded when considering or making investment decisions. In preparing this document, Arqaam did not take into account the investment objectives, financial situation and particular needs of any particular person. Accordingly, before acting on this document, investors should independently evaluate the investments and strategies referred to herein and make their own determination of whether it is appropriate in light of their own financial circumstances and objectives.
3. Rating system
Arqaam investment research is based on the analysis of regional and country economics, industries and company fundamentals. Arqaam company research reflects a long-term(12-month) fair value target for a company or stock. The ratings bands are:
Buy | Total return >15% |
Hold | 0-15% |
Sell | Total return <0% |
In certain circumstances, ratings may differ from those implied by a fair value target using the criteria above. Arqaam policy is to maintain up-to-date fair value targets on the companies under its coverage, reflecting any
material changes to the analyst's outlook on a company. Share price volatility may cause a stock to move outside the rating range implied by Arqaam's fair value target. Analysts may not necessarily change their ratings
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The information contained in this document is based on current trade, statistical and other public information we consider reliable. We do not represent or warrant that such information is accurate or complete and it should not be relied upon as such. Any mention of market rumours has been derived from the markets and is not purported to be fact or reflect our opinions. Arqaam has no obligation to update, modify or amend this document or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. In accordance with Regulation AC of the 1934 Exchange Act, the views expressed in this research report accurately reflect the research analysts' personal views about the subject securities or issuers and are subject to change without notice. No part of the research analysts' compensation is related to the specific recommendations or views in the research report.
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- Nothing in this document should be construed as a solicitation or offer, or recommendation, to acquire or dispose of any investment or to engage in any other transaction, or to provide any investment advice or service.
- This document is directed at Professional Clients and not Retail Clients within the meaning of DFSA rules. Any investments or financial products referred to herein will only be made available to clients who Arqaam is satisfied qualifies as Professional Clients. Any other persons in receipt of this document must not rely upon or otherwise act upon it.
- This document is only being distributed to investors who meet certain qualifications and to whom an investment or service may be offered or promoted in accordance with relevant country restrictions. This excludes the US except for SEC registered broker-dealers (or banks in permissible "broker" or "dealer" capacity) acting on a principal or agency capacity, and major US institutional investors in accordance with SEC Rules 15a-6(a)(2). Details of other relevant country restrictions are set out on our website at http://www.arqaamcapital.com/english/system/footer/terms-of-use.aspx. Persons into whose possession this document comes are required to inform themselves about, and observe, such restrictions and should not rely upon or otherwise act upon this document where it is unlawful to make to such person such an offer or invitation or recommendation without compliance with any authorisation, registration or other legal requirements.
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- Any prices, valuations or forecasts are indicative and are not intended to predict actual results, which may differ substantially from those reflected.
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- This document does not propose to identify or to suggest all of the risks (direct or indirect) which may be associated with the investments and strategies referred to herein.
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- Arqaam and its affiliates provide full investment banking services, and they and their directors, officers and employees, may take positions which conflict with the views expressed in this document. Our salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to our clients and our proprietary trading desks that reflect opinions that are contrary to the opinions expressed in this document. Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this document.
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- Facts and views presented in this document have not been reviewed by, and may not reflect information known to, professionals in other Arqaam business areas, including investment banking personnel.
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GFH Financial Group BSC published this content on 09 June 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 June 2024 05:21:04 UTC.