The board of Zenith Bank last week presented its unaudited Q1 scorecard which many agree did not disappoint keen followers of its performance over the years, even as it testified to the importance of good corporate governance. The numbers also bore testimony to a determination to create value for the banking and investing public, a fact that has consistently reflected in its juicier returns since 2004 when it had a successful Initial Public Offering (IPO) and its share became tradable on the Nigerian Stock Exchange.
Over those years, the management has sustained efforts in building a world-class institution while ensuring steady growth in profit, a factor that has translated into incremental and yearly juicier dividend payout without fail.
The bank maintained a consistent growth in Q1 gross earnings and net profit, outperforming analysts and market estimates, strongly supported by the impressive growth in interest and other income which shows the strength of its asset quality. Also important is that the performance was despite a decline in treasury and trading incomes which was not unexpected, given the drop in money market rates and yields on government securities. The reduced provision for loan loss during the period helped to mitigate the effects of this, while supporting bottom-line. It also manifested the impact of the bank’s stronger risk management as the new financial year opened.
Gross earnings for the Q1 report under consideration remained robust, rising by 15% to N169.20 billion from N147.74 billion in 2017, while profit rose by 25.5% to N47.10 billion from N37.5 billion in 2017 setting the tone for investors to expect juicier payout at year-end.
The growth in bottom line resulted from improved net interest income of 25.8%, despite the 32.7% increase in operating expenses for the period, with impairment charge for bad loans decreasing by 42%, while tax for the period inched up by 3.3% to N6.92 billion from N6.70 billion in 2017. Shareholders fund jumped by 6.88% to N735.25 billion from N687.9 billion last year.
Earnings per Share for the period went north to 150 kobo, from 119 kobo in 2017, representing a 26% growth, a replica of the price in 4.5x. This is higher than the 3.10x recorded last year to reflect growth in market value of the bank irrespective of improvements in its earnings power. The Q1 book value for the period stood at N23.42 per share.
The ability of management to turn 28 kobo of each Naira earned during the period is noteworthy as shown in the profit margin of 27.83%, reflecting the bank’s improved efficiency and robust risk management framework in an environment of declining yields.
Meanwhile, capital adequacy and liquidity ratios have remained above the regulatory requirement, thereby solidifying its fundamentals, in spite of its adoption of the new IFRS 9.
|3 MONTHS REPORT|
|Date Released||April 28, 2017||April 18, 2018|
|Price as@ Released Date||14.80||27.00||82.43|
|Profit After Tax||37,499,000,000||49,079,000,000||25.50|
|Earnings Per Share||1.19||1.50||26.00|
|Price To Book||0.68||1.15||69.12|
Source: NSE, Company Report and Investdata Research
|In an attempt to place intrinsic value on the shares of Zenith Bank and project full year EPS, we are optimistic about the bank’s performance in FY’18, considering that earnings from the corporate, investment banking and retail ICT-driven business continue to support profit.
Consequently, we project a full-year EPS of N6.10, following which Zenith Bank is fairly priced at N38.58, with a trailing P/E: 6.38x and Q1 Price/Book value of 1.15x.
Consequently, we believe investors with medium and long-term goals, who desire to preserve capital, should look the way of this stock.
Its Q1 result upgraded guidance is indicative of strong performance that continues to deliver on expectations.
Our findings have revealed that the share price of Zenith Bank is undervalued and that the changing market sentiments and perception about it will drive the price. This is especially if this tempo of impressive earnings is sustained as the year unfolds, just as we expect more money to flow into the Nigerian financial system. Our expectation is hinged on reality that the gubernatorial polls in Ekiti and Osun would hold in the coming months, to be followed by the general elections in the rest of the country February and March 2019, with the attendant heavy spending, if the past events that have not changed is anything to go by.
We recommend that investors should monitor the general market as things play out.
Zenith Bank’s price action on the Nigerian Stock Exchange (NSE) for the last four months has formed a descending triangle that supports continuation or reversal of the current trend. It has retraced up within the triangle on a positive sentiment for Q1 impressive numbers.
RSI is reading 47.74 and money flow index is looking up to signal that funds are still entering the stock. The buying pressure of the on weekly and daily time frame are 90% and 100% respectively on a daily MFI of 50.01 point.
|ZENITH INT’L PLC|
|Share Holding Structure|
|Stanbic Nominees Nig. Ltd||16.28%|
|Nigerian Citizens & Associations||74.34%|
|Shares Outstanding (MN)||31,396,493,786|
|Opening Price (2018)||N25.50|
|Closing Price at April 20, 2018||N27.00|
|Year End||31st Dec.|
Source: NSE, Company Report and Investdata Research
Nigeria’s most profitable bank kicked off the new financial year with strong earnings power to drive price and future dividend payout. It is important to stress that the bank is moving to become the first financial institution in the country to hit the N1.0 trillion gross earnings and N200 billion profit after tax milestone. Similarly, over the years, the Book Value of Zenith Bank has grown from N17.60 per share in 2014 to N26.17, with investor confidence and perception supporting its price even as valuation tools place its price at N38.
|ZENITH BANK FOUR YEARS FINANCIAL PERFORMANCE|
|Date Released||March 05, 2015||March 15, 2016||Feb 27, 2017||March 12, 2018|
|Price @ Released Date||19.00||13.30||14.73||30.90|
|Profit After Tax||99,455,000,000||105,663,000,000||129,652,000,000||177,614,000,000|
Zenith Bank Performance (2014-2017)
Numbers from the bank over the past four years have shown stability as can be seen in the tables above and below. The bank’s impressive scorecard was heightened in 2017 as reflected in its profitability and investment ratios.
Top line during the period grew by 84.66% to N745.19 billion from N403.54 billion in 2014 while profitability level rose by 78.57% from N99.46 billion in 2014 to N177.61 billion. The bank’s performance over the period has supported its share price, even as bottom line continues to trend in the up direction on a quarterly and yearly basis to surprise the market.
Within this period, the risk and cost management of the bank have improved significantly leading to enhanced value creation to all its stakeholders. Earnings per share remained strong and steady at 566 kobo regardless of over regulation in the industry and high cost of operation due to infrastructural gap
The earnings power of the bank rose from 317 kobo in 2014 to 337 kobo in the following year and was sustained in 2016 at 413 kobo, despite the economic recession and industry headwinds during these years.
As we have mentioned earlier in this analysis, the bank’s 2017 full-year EPS of N5.66 beat analysts and market expectations. Return on equity over the period climbed from 18% in 2014 to 21.62%, which attests to its value creation power to the delight of its shareholders.
|ZENITH BANK- ESTIMATED RATIOS|
|Earnings Per Share||3.17||3.37||4.13||5.66|
|Earnings Yield (%)||16.67||25.30||28.03||18.25|
|Profit Margin (%)||24.66||24.43||25.52||23.83|