Zenith Bank plc has raised its dividend as full-year profit beats analysts’ expectations, thanks to gains from foreign currency revaluation gains.
The lender said pretax profit for the period ended December 2016 rose 24.78 percent to N156.74 billion, from N105.66 billion the previous year. Net income was N129.15 billion, beating the N110 billion estimates of five analysts surveyed by BusinessDay.
Earnings got tremendous boost from an 810.12 percent surge in foreign currency revaluation gains to N25.58 billion, according to note 11 of the 2016 audited financial statement.
The results met our expectation because we had expected an after tax profit between N110 billion and N120 billion, but the bank did N129 billion, according to Saheed Bashir, head of research at Meristem Limited.
“There were also a significant increase in other income to N26 billion from N5.3 billion, that were the major upswing in the books,” Bashir said.
Zenith Bank’s interest income and similar charges were up 10.44 percent to N384.55 billion, driven by contributions from loans and advances from customers.
Net margins, a measure of profitability and efficiency, moved to 25.52 percent in December 2016 from 24.42 percent as of December 2015. Return on average equity (ROAE) improved to 20 percent versus the 18.4 percent recorded in 2015.
The full-year result outperformed consensus, according to analysts at Cordros Limited, in an emailed note.
Tajudeen Ibrahim, head of research at Chapel Hill Denham Limited, said Zenith Bank’s final dividend of N1.77 to shareholders could trigger a rally for its stock price.
The Board proposed a final dividend of N1.77 (vs. N1.55 in 2015FY), which in addition to the N0.25 paid as interim dividend, equates to N2.02 (vs. N1.80 in 2015FY) for the full year. Dividend yield (DY) stood at 13.51 percent.
On the contrary, Bashir said “the market is funny and unpredictable and has not reacted to the news of the stellar performance instead; people are swooping on the stock of GTBank.”
Zenith Bank’s share price closed at N14.98 as of Tuesday, valuing the bank at N463.09 billion.
Johnson Chukwu, managing director/CEO of Cowery Asset Management Limited, attributed Zenith Bank’s earnings growth to huge current account balances, good asset quality as evidenced in its low non-performing loans (NPLs).
“They enjoyed maintenance fee on transaction and they will have more commission income. I want to believe that Zenith Bank and its peers will outperform the market,” Chukwu said.
While analysts expect benign results from Tier 1 lenders on the back of the foreign exchange revaluation gains, the Tier 2 and lower banks are more susceptible to the credit crunch caused by severe dollar scarcity.
Nigeria is in a recession, the first in 25 years, stoked by a sharp drop in the price of oil since mid-2014 and a severe dollar shortage.
The woes have made it practically difficult for banks to raise capital while bad loans are troubled due to exposure to the oil and gas.