Zenith Bank: Stock gets positive ratings on impressive H1 scorecards
Last week, Zenith Bank Plc became the first tier-one lender to release its audited interim financial report for the half year (H1) ended June 30, 2017.
The financial scorecards of the bank which beat most analysts’ expectation show gross earnings rose by 77.10percent in H1 2017 to N380.44billion, up from H1 2016 level of N214.81billion.
The results at the Nigerian Stock Exchange (NSE) show the Zenith Bank grew its Profit after tax in H1 2017 rose by 112.36percent to N75.31billion from H1’16 low of N35.47billion.
The bank declared interim dividend of 25kobo for the H1 period ended June 30, same as in corresponding period of 2016. Profit before tax rose to N92.18billion from H1’16 level of N53.90billion, up by 71.01percent. Earnings per share reached new high in H1 2017 to N2.39 from N1.13, up 112.46percent.
Zenith Bank Plc (Zenith Bank) is Nigeria’s second largest lender. The bank offers its clients wide range of corporate, investment, business and personal banking products and solutions across 500+ branches, predominantly in Nigeria, with subsidiaries in the UK, Ghana, Sierra Leone and Gambia, as well as representative offices in South Africa and China.
Principal activities and business review
The principal activity of Zenith Bank Plc is the provision of banking and other financial services to corporate and individual customers.
Such services include obtaining deposits from the public, granting of loans and advances, corporate finance and money market activities.
Zenith Bank Plc has five subsidiary companies namely –Zenith Bank (Ghana) Limited, Zenith Pensions Custodian Limited,
Zenith Bank (UK) Limited, Zenith Bank (Sierra Leone) Limited and Zenith Bank (The Gambia) Limited. During the review first-half period, the bank opened one new branch while no branch was closed during the period.
Substantial interest in shares
According to the register of members as at June 30, 2017, the following shareholders held more than 5percent of the issued share capital of the Zenith Bank Plc.
Jim Ovia (2,946,199,395units), which represents 9.38percent; Stanbic Nominees Nigeria Limited/C011–MAIN (2,930,305,445 units) or 9.33percent; Stanbic Nominees Nigeria Limited/C002–MAIN (2,259,774,999 units) or 7.20percent; and Stanbic Nominees Nigeria Limited/C001–TRAD (1,970,144,280 units) which represents 6.28percent.
“Zenith’s H1 PBT tracks well ahead of consensus full year (FY) 2017 PBT forecast of N165billion. As such, we expect to see marked upward revisions to consensus PBT forecast. The shares have outperformed the Index this year. They have gained 62.7percent year-to-date (ytd) versus 41.8percent ytd for the All Share Index (ASI). We rate the shares Outperform. Our estimates under review”, Olubunmi Asaolu’s team of research analysts at FBNQuest noted in their first reaction to the bank’s results.
Also, FBNQuest analysts “outperform” rating given to Zenith Bank stock results from the analysts’ expectation that the stock will outperform the Nigerian Stock Exchange (NSE) All Share Index (ASI) over the next 12 months or the specified investment horizon.
Also, Olalekan Olabode-led team of research analysts at Vetiva Capital believe that Zenith Bank Plc earnings beat as foreign exchange (FX) income spike dwarfed huge provision. The analysts want investors to buy the shares of the bank following the raise in their target price (TP) to N30.73 from previous N28.
The analysts “Buy” rating for Zenith Bank Plc shares results from their consideration that it is highly undervalued, but with strong fundamentals. Also, they expect Zenith Bank shares to offer potential return in excess of or equal to 15percent between the current price and analysts’ target price.
“With capital adequacy and liquidity ratios of 21percent and 61percent (regulatory benchmark of 15percent and 30percent) respectively, we believe the bank is well positioned to take advantage of the market opportunities. Given the earnings outperformance, we revise our target price to N30.73 (Previous: N28). Although we have seen a strong rally in the stock in recent time (Ytd return: 63percent), we believe the bank remains largely undervalued,” said Vetiva Capital research analysts.
“Amidst rising non-performing loan (NPL) ratio (H1’17: 4.3percent versus first-quarter (Q1) 2017: 3.2percent), Zenith Bank reported a significant rise in loan loss provision, up 198percent year-on-year (y/y) to N42 billion versus our N16 billion estimate. According to management, the increase in impairment charge was largely driven by higher provisioning across the Power and Telecoms sectors.
“We recall that Zenith Bank had the highest exposure to Etisalat and believe the bank must have taken a conservative approach to make provision for a portion of their exposure to the telecoms company. Despite this, Operating Income rose 47percent year-on-year (y/y) to N215 billion – 22percent ahead of our N176billion estimate”, Vetiva Capital research analysts further noted.
Exposure to 9mobile (formerly Etisalat)
Zenith Bank has made a provision on 30 percent of its loan to 9mobile, the country’s fourth largest telecoms group formerly known as Etisalat Nigeria, the bank’s chief executive said on Monday.
“We have taken about 30 percent … as a provision which we believe is very prudent as the company is undergoing restructuring … to prepare for a new investor,” Peter Amangbo told a conference call.
Zenith Bank Plc share price stood at N23.5 as at Monday August 14. With a market capitalisation of N763.563billion, Zenith Bank Plc shares outstanding stands at 31,396,493,786 units.
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