Zenith: Healthy Q2 Earnings That Supports Share Price

As tends to be in the case of Zenith Bank performance that is well established in their respective operational division and have benefited from aggressive management team with professionalism and experts driving the bank affairs. Its multi-year track record of outstanding profitability level in its industry has continued. Its consistent rewards to investors as the bank has in its recent earnings report adopted interim dividend to reflect the board and management commitment in creating value for its shareholders. At the first annual general meeting of the new chairman and managing director of the bank, shareholders suggested the interim payment which the board had effected in this report, showing how responsive the leaders are. 

Meanwhile, the bank’s half year result for the period ended June 30, 2015 was made available to the market recently, consistent and late compared to the release date of 2014 which was as a result of auditing process for the first interim dividend. The numbers revealed impressive performance as its top and bottom lines were northward. Gross earnings remained robust, compared with that of the corresponding period by 24 per cent from N184.43 billion in 2014 to N229.08 billion. Profitability level for the period was up by 12 percent to N53.18 billion from N47.45 billion in 2014.  The bank's cost of operation for the period hindered its profit as reflected in the profit margin for the quarter that dropped by 10 percent, with impairment charge for credit losses and tax increasing by 144 per cent and 83 percent respectively. Net assets bounced up to N546.39 billion from N458.32 billion last year. Its earnings per share for the period went up to 169 kobo from 151 kobo in 2014 representing 12 percent growth.  

The 169 kobo EPS for half year is a replica of the price in 9.40x, which is lower than the 16.54x recorded last year.  The second quarter book value for the period stood at N17.40. The drop in profit margin compared to last year’s is evidence of increase in cost operation, just as results for the quarter indicates high cost of operation that calls for more  management effort to cut cost and boost its bottom line. The harmonization of the CRR to 31 percent by the CBN has boosted the bank’s liquidity position to create this   earnings lead in the sector.

ZENITH  BANK PLC
AUDITED HALF YEAR
COY	2015	2014
	(N)	(N)	% Chg
Date Released	August 13, 2015	July 23, 2014
Price as@ Released Date	15.93	25.00	-36.28
Gross Earnings	229,082,000,000	184,434,000,000	24.21
Profit After Tax	53,180,000,000	47,445,000,000	12.09
Shareholders' Fund	546,386,000,000	458,319,000,000	19.22
ESTIMATED RATIOS
Earnings Per Share	1.69	1.51	11.92
PE Ratio	9.40	16.54	-43.17
Earnings Yield	10.63	6.04	71.52
Book Value	17.40	14.60	19.18
ROE (%)	10	10
Dividend( Interim )	0.25	nil
Profit Margin	23.21	25.72	-9.76
Year End	Dec	Dec

Encouragingly for investors is the improved profitability and investment ratios, coupled with the dividend of 25 kobo for half year, indicating a better end of year for all stakeholders? The closure and payment date for the dividend are August 24, 2015 and August 28 2015 respectively.

Technical View

The descending triangle of Zenith Bank is a continuation or reversal pattern but now at a strong support level with double bottom signaling buy opportunity, as reversal is imminent. Traders and Investors are to position right away as the stock is currently trading at a discount and the recent financials is expected to support price going forward.  The stock has formed a double bottom at N15.93 and N15.99 respectively. And at the same time a descending triangle awaits break down or out.   

Valuation

Zenith Bank current share price is considered very attractive at 9.40 times earnings. Its recent financial results and upgrade to 2H15 guidance are indicative of strong performance that continues to deliver on expectations. Meanwhile, the Book Value reveal an underpriced situation at its trade below N17.40 Thus, each unit of Zenith Bank is fairly priced at N30.00.

Analysts Opinion/Recommendations

Since the last update in early-march 2015, the bank had suffered price declined since April in the same direction with the general market.  With the numbers reported in this interim results for the six months ending 30 June 2015 the bank full year EPS is projected to be in the region of 340 kobo. As summarised in the table above, Zenith bank delivered a solid  as its retain earnings grew from N40.35 billion to N45.48 billion representing 13 percent increased as net income  was up  by 12 percent to N53.18 billion. The year-on-year change in earnings per share was commensurate with net earnings. The stock looks good for traders and investors especially from the low price of N 16.08 from where it is expected to grow and build first tradable resistance at N18 and support level at N15.93.

ZENITH INT'L PLC
Share Holding Structure
Jim Ovia	9.38%
Stanbic Nominees Nig. Ltd	16.28%
Nigerian Citizens & Associations	74.34%
Other Statistics
Shares Outstanding (MN)	31,396,493,786
Opening Price (2015)	N18.41
Closing Price as @Aug 14, 2015	N16.08
Date Listed	21/10/2004
Year End	31st Dec.

The bank's management team has maintained efforts in building a world-class bank in all ramifications to ensure steady growth in terms of profitability and dividend payout.
The post meltdown crisis and reforms in its industry has solidified its operations and branch networking through the drive of ICT that had been the supporting game changer of the bank to remain top in the banking sector. The bank’s immense effort was clearly revealed in the released financials for the last five years. Activities were boosted as all figures were green and tall as against comparable periods. Investors, on the other hand, were not blind to the outstanding performances hitting the market from the bank as they took strategic positions which saw the price up through the years. Similarly, the book value has grown in the same direction to N16.22 from N11.58 achieved in 2010, investors’ confidence complimented its price as valuation tools placed the bank's stock at N30.

ZENITH BANK FOUR YEARS FINANCIAL PERFORMANCE
	2014	2013	2012	2011	2010
	000,	000,	000,	000,	000,
Date Released	5-Mar-15	11-Mar-14	4-Apr-13	3-Sep-12	22-Mar-11
Price@Released Date	18.67	21.4	21.65	13.9	15.43
Gross Earnings	403,343,000	351,470,000	307,082,000	244,070,000	192,488,000
Profit After Tax	99,455,000	95,318,000	100,681,000	48,704,000	37,414,000
Shareholders' Fund	552,638,000	509,251,000	462,956,000	394,268,000	363,561,000
Dividend	1.75	1.75	1.60	0.95	0.85

Zenith Bank Performance

A critical look at the bank’s performance for the last five years showed that the bank has steadily enhanced its performance as reflected in its profitability ratio within the period under review. Its gross income during the period grew by 109.51 percent from N192.49 billion in 2010 to N403.34 billion while profit after tax (PAT) rose by 165.82 percent to N99.46 billion from N37.41 billion posted in 2010. The bank after the economic meltdown posted stronger numbers that supported its share price. The profitability level of the bank in 2012 hit N100.68 billion which made bank the first in its sector to record N100 billion profit mark. It also ranked among the top three banks in profitability, asset, margin, service delivery and risk management in its industry today.  Within this period, the risk and cost management of the bank had improved tremendously leading to enhanced value creation to all its shareholders and other stakeholders. The nature and complexity of the risks in its business requires strong and robust risk management structure to provide adequate oversight at all levels. The earnings power of the bank remained strong at 304 kobo regardless of the period it fluctuated to reflect the banking industry over regulation in 2013 till date with high MPR, tight liquidity, falling crude oil price, dwindling external reserve and falling naira value at the exchange market.  In 2012 the bank posted earnings per share of 320 kobo before dropping to 304 kobo in 2013 but now inched 316 kobo regardless of its industry headwinds during the year. The bank's 2014 full year earnings per share of N3.16 beats analysts and market expectations as market expected that non-performing loan resulting the falling oil price would have impacted negatively on the banks profitability. The bank’s total assets per share and book value per share stood at N119.61 and N17.60 respectively.

ZENITH BANK- ESTIMATED RATIOS
	2014	2013	2012	2011	2010
Earnings Per Share	3.16	3.04	3.21	1.55	1.19
PE Ratio	6.61	7.05	6.75	8.96	12.95
Earnings Yield	16.71	14.19	14.81	11.16	7.72
Book Value	17.6	16.22	14.75	12.56	11.58
ROE	18%	19%	22%	12%	10%
Profit Margin	24.66	27.12	32.79	19.95	19.44
Year End	Dec	Dec	Dec	Dec	Dec

Investment Analysis
Investment analysis of Zenith stock between 2010 and 2014 showed an improvement in share price from N15.43 as at March 22, 2011 when the bank 2010 full year result hit the market to N20.94 on March 6, 2015 when 2014 full year financials were released, representing 35.71 percent price appreciation after it had hit all high of N27.00 and low of N14.89 within the period under consideration. Its earnings per share for the period was up as a result of great cost and risk management of the bank that reduced its non-performing loan. The earnings power grew from N1.19 in 2010 to N3.16 in 2014 representing an increase of 165.55 percent. However, the EPS went up to N3.20 in 2012 before it slide to N3.04 in 2013 and bounced back last year. When the bank paid a dividend of N1.75kobo to its shareholders in 2013 which is the same dividend declared for 2014 and N0.85kobo per share in 2010 representing 105.8 percent growth in just five years.
In 2011 as the bank continued to grow its earnings to solidify its position in its sector and the market its EPS was up by 20 percent to 155 kobo on that strength a dividend of 95 kobo were given to shareholders representing 12 percent increase from 85 kobo paid in 2010.  The bank latest earnings revealed better performance than the past considering 2014 challenges experienced by the banking industry during that year.  The bank profit margin has been sliding down to reflect  operational cost not minding its aggressiveness to  management and  control cost in order  to create value for its customers and shareholders with improved innovative banking products.