ZENITH BANK: IMPRESSIVE Q3 NUMBERS TO DRIVE PRICE, DIVIDEND

Zenith Bank's aggressive and dogged management approach in all levels of operations have continually supported and driven profit to keep it among the top 20 banks in Africa and top three in Nigerian in terms of market capitalisation, earnings, deposit, total assets and net assets.

The bank recently made available its unaudited account for the nine-month ended September 30, 2016 to the investing community earlier than the release date of the 2015 Q3 numbers. Its years of professionalism and effective risk management track record have reflected in its outstanding earnings power, which  has continued to support price and dividend payout.  

The Q3 numbers revealed impressive performance as top and bottom lines were in northward, resulting in 318 kobo Earnings Per Share on the profit of N100.07 billion, well above market and analysts expectations. Expectedly, the bank's share price reacted positively, gaining 1.67% on the day the result was released.  Gross earnings remained robust, compared to previous year's by 13%, from N336.85 billion to N380.35 billion. Profit level for the period was up by 20% to N100.07 billion from N83.09 billion in 2015, despite the marginal drop in fees and commission income for the period.

The bank's cost of operation for the period moved  slightly down as reflected in the profit margin for the period, which increased  by 7%, at a time provision for credit losses and bad loans increasing by 125%  to N21.86 billion from N9.73 billion in 2015.  Net assets jumped to N695.60 billion from N571.50 billion last year. EPS for the period went up to 319 kobo from 265 kobo in 2015, representing a 20.44% growth.  

The EPS of 319 kobo for the period is a replica of the price in 1.54x, which is lower than the 2.22x recorded in the same quarter last year. The bank's Book Value for the period stood at N22.16, while  profit margin for same period improved relatively by 6.67% compared to that of corresponding year which  is an evidence of slight reduction in cost of  operation, just as results for the period  indicates good performance and improved cost management that had  boosted bottom line.

The increased Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN) and the flexible foreign reserves regime has also impacted the bank’s liquidity position to lead the industry with its total comprehensive income for the period at N157.76 billion and TCI/Share of 502 kobo.

ZENITH  BANK PLC
NINE MONTHS UNAUDITED REPORT  2016
COY	2015	2016
	(N)	(N)	% Chg
Date Released	October, 29, 52015	October 21, 2016
Price as@ Released Date	17.16	14.75
Gross Earnings	336,853,000,000	380,352,000,000	12.91
Profit After Tax	83,087,000,000	100,074,000,000	20.44
Shareholders' Fund	571,501,000,000	695,649,000,000	21.71
ESTIMATED RATIOS
Earnings Per Share	2.65	3.19	20.44
PE Ratio	2.22	1.54	-29.00
Earnings Yield	15.04	21.61	46.20
Book Value	18.20	22.16	21.71
Price To Book	0.97	0.67	30.69
ROE (%)	14.54	14.39	-1.09
Profit Margin	24.27	26.31	6.67
Year End	Dec	Dec

As the bank continues to build capacity to drive performance ratios, the estimated nine months earnings of N3.19 per share, with yield on the current market price of Zenith Bank at 21.25% is better than 15.04% recorded in the corresponding Q3 of 2015. Retained earnings remained positive at N224.99 billion, a pointer to the fact that the possibility of dividend payment at the end of this financial year is high.  

Also, total debt to equity is currently estimated at 72.81%; this is above the industry average of 48.46%. Total Assets in form of Loan and Advances is 57.84%, while 90.09% of the total deposits is out as Loan and financial leverage is fair at 6.69x. The consistent growth of its book value is encouraging and exciting for investors.  

Valuation

The bank's current share price is considered very attractive at 1.54x earnings. Its 2016 financial year result upgraded guidance are indicative of strong performance that continues to deliver on expectations. Meanwhile, the Book Value reveals an underpriced situation as its trades below N22.16 per share. Thus, each unit of Zenith Bank is fairly priced at N28.

Analysts Opinion/Recommendations

Since the beginning of the current financial year, the bank's share price has oscillated to reflect the general market direction and trend. With the quarterly reports so far, the bank's full year EPS is projected to be in the region of 358 kobo. As Zenith bank is expected to deliver a solid top and bottom line of N445.56 and N120.23 billion respectively. It has grown its retained earnings for the period under consideration from N203.89 billion in 2015 to N224.99 billion, representing 10.35% increase, above the full-year 2015 retained profit of N200.12 billion. The year-on-year change in EPS was commensurate with net earnings. The stock looks good for traders and investors, especially from the low price of N14.90 from where it is expected to grow and breakout first tradable resistance at N16.91 and support level at N13.53. The shares of Zenith are undervalued with focus on our FY 2016 estimates.

The stock is currently trading at a 88% discount to our fair value estimate of N28. We are mildly optimistic that despite the tight operating environment in Nigeria with over regulation, which has been worsened by the Federal Government's implementation of the Treasury Single Account (TSA) policy which has tightened liquidity in the Nigerian financial system. Add this to the steep tank in oil prices which posed a major threat to the asset quality for most Nigerian banks as a result of their exposures to the sector and the tight currency control policies of the CBN which has weakened the earnings capacity of banks in the country, we believe Zenith Bank has the capacity to weather the storm. 

Although we expect major headwinds, at least all through the remaining  days  of 2016, it is our opinion that the massive drop in share prices will adequately compensate for any unexpected down side risks. We are also impressed with the steady rise in the company’s book value position over the last few years. However the bank must be proactive with its Return on Equity growth. We have a BUY recommendation on the shares of Zenith Bank.

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  2015	N14.05
Closing Price at October 28, 2016	N14.90
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 sector. Its immense effort was clearly revealed in the released financials for the last four years. All figures were green and tall as against comparable periods. Investors, on the other hand, were not blind to the outstanding performance hitting the market from the bank as they took strategic positions which continued to reveal value in the stock. Similarly, the book value has grown in the same direction to N18.93 from N14.75 achieved in 2012, investor confidence complimented its price as valuation tools placed the bank's stock at N26.

ZENITH BANK FOUR YEARS FINANCIAL PERFORMANCE
	2012	2013	2014	2015
Date Released	April 04 , 2013	March 11, 2014	March 05, 2015	March 15, 2016
Price @ Released Date	21.65	21.40	19.00	13.30
Gross Earnings	307,082,000,000	351,470,000,000	403,536,000,000	432,343,000,000
Profit After Tax	100,681,000,000	95,318,000,000	99,455,000,000	105,663,000,000
Shareholders' Fund	462,956,000,000	509,251,000,000	552,638,000,000	594,353,000,000
Dividend	1.60	1.75	1.75	1.80

 
Zenith Bank Performance

The bank’s performance for the last four years showed that it has steadily enhanced its performance as reflected in its profitability ratio within the period. Gross income during the period grew by 40.80% from N307.08 billion in 2012 to N432.34 billion, while profit after tax (PAT) rose by 5% to N105.66 billion from N100.68 billion posted in 2012. The bank in the last four years has posted stronger numbers that supported its share price. Profit was down in 2013 to hit N95.31 billion, rebounding in 2014 and 2015 to be the first Nigerian bank to hit the N105 billion profit mark. It also ranked among the top three in asset, profit 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 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 remained strong at 321 kobo, regardless of the period it fluctuated to reflect over-regulation in the industry and current economic situation with high MPR, tight liquidity, falling crude oil price, dwindling external reserve and falling Naira value at the exchange market. 

In 2013 the bank posted a lower earnings per share of 304 kobo before turning up to 317 kobo in 2014 and 337 kobo in 2015 regardless of its industry headwinds over the years. The bank's 2015 full year earnings per share of N3.37 beats analysts and market expectations. While the market expected that non-performing loan resulting from 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 N122.88 and N18.93 respectively.

ZENITH BANK- ESTIMATED RATIOS
	2012	2013	2014	2015
Earnings Per Share	3.21	3.04	3.17	3.37
PE Ratio	6.75	7.05	6.00	3.95
Earnings Yield (%)	14.81	14.19	16.67	25.30
Book Value	14.75	16.22	17.60	18.93
ROE (%)	22.00	19.00	18.00	17.78
Profit Margin (%)	32.79	27.12	24.66	24.43
Year End	Dec	Dec	Dec	Dec

All Rights Reserved © Investdata Nig Ltd 2016