Zenith Bank: Analysts update price target to reflect positive earnings
Zenith Bank Plc on Monday raced ahead of other banking peers and released its full year 2016 result posting impressive performances across board. As the result berthed with some positive surprises, most analysts moved to review upwards their price targets for Zenith Bank plc shares.
The Full Year numbers
The results for the period ended December 31, 2016at the Nigerian Stock Exchange (NSE) show Zenith Bank Plc gross earnings of N507.997billion against N432.535billion in 2015, an increase of 17.45percent.
Its reported profit before income tax (PBT) in 2016 was N156.748billion against N125.616billion in 2015. Profit After Tax (PAT) rose to N129.652billion from N105.663billion in 2015. Basic and diluted earnings per share increased to 412kobo from 336kobo in 2015, an increase of 22.62percent.
Interest and similar income also increased to N384.557billion from N348.179billion in 2015, an increase of 10.45 percent driven largely by loans and advances to customers, Treasury bills and other government securities.
The bank’s fee and commission income increased to N68.444billion in 2016 from N60.904billion in 2015, an increase of about 12.38percent; while trading income increased to N28.398billion in 2016, largely due to FX revaluation gains from N18.150billion in 2015. The bank grew its total assets to N4.739trillion from N4.006trillion in 2015, up by 18.29percent.
The bank posted an increase in customer deposits of 16.64 percent to N2.98 trillion, an increase from N2.557trillion in 2015. Impairment on loans and other credit losses expanded by 106.41percent year-on-year (y/y) to N32.35billion, (FY’15: N15.67bn). The management of Zenith Bank Plc held a teleconference call on Tuesday, February 28, 2017.
On the back of the impressive results, the board of directors of the bank proposed final dividend of N1.77 which implies a dividend yield of 12 percent using Friday’s closing price of N14.73kobo. The dividend and strong profit before tax (PBT) is already providing support for Zenith Bank Plc shares. The share price rose to N14.81 at week open.
The proposed final dividend of N1.77 kobo per share is in addition to the 25kobo per share the bank paid as interim dividend, both amounting to N2.02 kobo per share (against December 31, 2015 level of N1.80 kobo per share). Zenith Bank has market capitalisation of about N464.668billion with shares outstanding of 31,396,493,786 units. The proposed dividend will be presented to the shareholders of the bank for approval at the next Annual General Meeting (AGM).
If the proposed dividend is approved by the shareholders, the Bank will be liable to pay additional corporate tax estimated at N12.52 billion representing the difference between the tax liability calculated at 30% of the dividend approved and the tax charge reported in the statement of profit or loss and other comprehensive income for the year ended 31 Dec 2016. Payment of dividends is subject to withholding tax at a rate of 10 percent in the hand of qualified recipients.
Commenting on the results, the management of the Zenith Bank Group stated: “The performance for the year ended December 31, 2016 re-affirms Zenith’s industry leadership and consistency in providing superior financial returns. This is demonstrated by the 25% and 23% growth in Profit Before Tax (PBT) and Profit After Tax (PAT) respectively despite the continuously challenging macro-economic backdrop.”
“The impressive growth of non-interest income is primarily attributable to the banks electronic products delivery, retail drive and derivatives income. The increased focus on retail drive resulted in a 46% Y-o-Y growth in savings deposits. The cost control initiatives embarked by the Group continue to yield positive results with an 8% reduction in cost to income ratio to close at 53% for the year ended December, 31 2016.
While the year-end 2016 inflation rate was18.55%, the Group was able to keep its absolute operating expenses relatively flat moving by 4% from N167.9 billion to N174.5 billion Interest expense, however, increased by 16.8% (Y-o-Y) mainly due to a 92% increase in cost of borrowed funds which was is largely driven by the movements in the exchange rate. The loans and advances of the Group grew by 16% Y-o-Y to close at N2.3 trillion as at 31 December, 2016; mainly due to the devaluation of the Naira,” the bank management said in a recent statement.
The bank further said: “The Group reported a Non Performing Loss (NPL) ratio of 3.02% as at December 2016 compared to 2.18% in 2015 with a coverage ratio of 100%, which are attestations of the quality of the Group’s loan book. Liquidity ratio and Capital Adequacy Ratio (CAR) came in at 60% and 23%, which are higher than the regulatory requirements of 30% and 15% respectively.
Olalekan Olabode team of research analysts at Vetiva Capital acknowledged that Zenith Bank Plc posted impressive performances across board. Vetiva analysts revised their target price for Zenith Bank shares to N27.25 from previous N26.02. “We have updated our model to reflect the positive earnings surprise”, the analysts said.
Also, Olubunmi Asaolu team of research analysts at FBNQuest who noted that Zenith Bank Plc results beat their forecast, simply said: “Our estimates are under review. We rate Zenith shares outperform.” According to FBNQuest analysts “We expect the dividend and the strong PBT result to provide support for the shares. Given the better-than-expected non-performing loan (NPL) ratio, the market’s expectations for 2017 earnings may improve, however”.
“Indeed it was an impressive performance for Zenith Bank Plc. Investors are better off with the result and dividend payout. Zenith has trailed the blaze despite macroeconomic challenges that banks faced last year. The performance of Zenith Bank confirms our earlier view that tier-one lenders will always weather the storms,” Sewa Wusu, head research at SCM Capital Limited told BusinessDay.
The analysts at SCM Capital Limited noted that Zenith Bank non-interest income increased by 45.9 percent due to an 809 percent increase in foreign exchange (FX) revaluation gains of N25.6 billion – “this however declined by 10 percent from the N8.2 billion reported in nine months 2016.”
Also, DLM Research analysts noted interest income was the most significant driver of Zenith Bank earnings “despite rising at a much slower pace relative to revenue growth.”
Chiazor Victor team of research analysts at Capital Bancorp Plc noted that having consistently grown gross earnings and PBT over the last six years in the face of significant headwinds, “we insist that Zenith Bank has strongly positioned itself amongst the leaders in the banking sector given its FY’16 stunning performance.”
“Reflective of its current earnings, we remain bullish on the outlook of the company and maintain our initial target price with a BUY recommendation on the company shares,” Capital Bancorp Plc analysts added.
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