ZENITH: ROBUST BALANCE SHEET, STEADY PROFIT GROWTH FOR VALUE CREATION

With a high-powered corporate governance and impressive performance that guaranties consistent growth and sustainable value creation in excellent services delivery that drives profitability, Zenith Bankrecently released its full-year earnings report for the period ended December 31, 2016 to the investing community. The result came earlier than the date of its 2015 account in keepingwith its post listing requirement and to keep a track record for easy projection by analysts and investors.  

There was a mixed reaction to the strong numbers posted by the bank as investors seeming took the plan by the board to raise fresh capital with mix feelings, amidst fears of an imminent dilution of their holdings at the expense of value creation. 

In its 13 years as a listed stock on the Nigerian Stock Exchange, the bank’s management team has not relented in its efforts to build a world class financial institution in all ramifications, a situation that had boosted its performance to support the transformation and numbers being posted. The bank is seeking fresh funds for expansion to better its performance should not be viewed with bad feelings,going by the factZenith Bank has effectively managedresources at its disposal successfully, posting impressive numbers all these years.  The bank’s effort is visible in the released financials, which is in spite of the economic downturn, as the scorecard revealed impressive performance as its top and bottom lines pointed inthe northward direction. 

Gross earnings remained strong;rising above previous year’s figure by 17.45%to N508bn from N432.54bn, while profitfor the period was up by 22.7% from N105.66bn to N129.65bn.  The bank's cost management for the period enhanced its income as reflected in the profit before tax and net profit margin for the year that increased by 4.46%, with impairment charge for credit losses and operating expenses increasing by 106.41% and 3.78% respectively. Shareholders funds bounced up to N704.47bn from N594.35bn last year. Earnings per share for the period rose to 413 kobo from 337 kobo in 2015, representing a 22.55% growth. 

The bank’s earnings power of 413 kobo per share for year has shortened investors waiting period with a replica of the price in 3.57x, which is slightly down from 3.95x recorded last financial year.Based on the result, Zenith Bank’s Book Value for the period stood at N22.44; profit margin compared to previous year’s is evidence of improved cost management, regardless of the slight increase in cost of operation which the management is encouraged to do more to boost its bottom line.  The relatively stable monetary policy instrument and the CBN forex policyhas boosted the Zenith Bank’s income to remain the most profitably financial institution in the country today. 

ZENITH  BANK PLC
FULL YEAR AUDITED  2016
COY	2015	2016
	(N)	(N)	% Chg
Date Released	March, 15, 2016	Feb, 27, 2017
Price as@ Released Date	13.30	14.73	10.75
Gross Earnings	432,536,000,000	507,997,000,000	17.45
Profit After Tax	105,663,000,000	129,652,000,000	22.70
Shareholders' Fund	594,353,000,000	704,465,000,000	18.53
ESTIMATED RATIOS
Earnings Per Share	3.37	4.13	22.55
PE Ratio	3.95	3.57	-9.62
Earnings Yield	25.30	28.03	10.79
Book Value	18.93	22.44	18.54
Price To Book	0.70	0.66	-5.71
ROE (%)	17.78	18.40	3.49
Dividend	1.80	2.02	12.22
Profit Margin	24.43	25.52	4.46
Year End	Dec	Dec

Valuation

We believe that future expectation validate any projection, consistent revenue and earnings growth on quarterly and yearly basis is our central focus and positive outlook for  the bank’s stock.  The bank’s2016 Price to Earnings Ratio stood at 3.57xs, with Price to Book Value ratio of 0.66 and Dividend Yield of 12.02%. Investors with medium and long-term goal and want to preserve capital should look the way of this bank stock. Its 2016 financial year result upgraded guidance is indicative of strong performance that continues to deliver on expectations. As the bank’sBook Value reveal an underpriced situation at it trades below N22.44, representing 52.34% discount of its market value. Thus, each unit of Zenith Bank is fairly priced at N30, as the retained earnings grew by 33.43% to N267.01 billion 2016.

Technical View

The bank price action for one year has formed a symmetrical triangles that supports continuation or reversal of the current trend as price recently broke down the triangle on negative sentiment of the bank’sproposed capital raising as it went below the latest support level of N14 after its 52 weeks high of N18.05 and low of N10.35. REVERSAL of the bank price action is imminent. 

Analysts Opinion/ Recommendations

By all standards the bank beat market expectation as profitability and investment ratios were up for the 2016, with profit of 25.52% above the international standard of 15%, equity multiplier of 14.86%, loan to deposit of 64.69%, ROAA and ROAE were 2.74% and 18.40% respectively. The bank’s NPL ratio of 3.02% with a coverage ratio 100%is evidence of its robust risk management framework. Its liquidity and capital adequacy ratio of 60% and 23% respectively are above the regulatory requirement of 30% and 15% respectively.The bank’s share price within the year under view has oscillated to reflect the general market direction, headwind in its industry and the economy at large, with the numbers reported beating projection of 347 kobo to 413 kobo. As broken down in the table above, Zenith bank has delivered a concretenumbers in all ramification to support reversal of it share performance.  

The mixed interpretation and reaction to the seeming N100 billion fresh capital by bond and GDR, according to reports, may have sent fear of dilution but with the track records of the bank’s performance this should not sent fear rather than boost confidence that this will enhance future earnings and wealth creation for shareholders. If the bank has donethis well, despite the tight operating environment in Nigeria  to consistently grow its quarterly and yearly in 2016 and with the steady rise in the bank’s book value position over the last few years. However the bank must be proactive to continue growthof bottom line. We are confident that the bank will remain the nation’s most profitability. 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 (2016)	N14.05
Closing Price  2016	N14.75
Closing Price at Feb 27, 2017	N14.80
Date Listed	21/10/2004
Year End	31st Dec.

The bank’sconservative nature and prudenceis paying off in its efforts to build a world-class bank with steady growth in terms of profitability, dividend payout and impacting the economy through its social responsibilities. Also, the bank has demonstrated its doggedness at all levels of operations that have continually supported and driven profit to keep it among the top banks in Africa and in Nigerian in terms of market capitalisation, earnings, deposit, total assets and net assets.  The bank’s branch networks within and outside the country with professionalism in service delivery at all level have shown in the released financials for the last Four years. Its innovations through the bank ICT platforms have contributed to making all the figures in green. Investors, on the other hand, have all equally followed the outstanding performances of the bank over time taking strategic positions which continues to reveal value in the bank’s stock in creating wealth as investors continue to smile to the banks on biannual bases. Similarly, over the years, its BookValue has grown in the same direction from N16.22 in 2013 toN22.44, investor confidence supported its price as valuation tools placed the bank's stock at N30.

ZENITH BANK FOUR YEARS FINANCIAL PERFORMANCE
	2013	2014	2015	2016
Date Released	March 11, 2014	March 05, 2015	March 15, 2016	Feb 27, 2017
Price @ Released Date	21.40	19.00	13.30	14.73
Gross Earnings	351,470,000,000	403,536,000,000	432,343,000,000	507,997,000,000
Profit After Tax	95,318,000,000	99,455,000,000	105,663,000,000	129,652,000,000
Shareholders' Fund	509,251,000,000	552,638,000,000	594,353,000,000	704,465,000,000
Dividend	1.75	1.75	1.80	2.02

Zenith Bank Performance (2013-2016)

Looking atthebank’s performance in the past four years as revealed by the numbers in the table above and below, the figures showed that the bank has consistently during the period under review heightened its performance as reflected in its profitability and investment ratios for the period. 

Its gross income during the period grew by 44.54% from N351.47bn in 2013 to N507bn, while the bank’s earnings power rose by 36.02% to N129.65bn from N95.32bn posted in 2013. The bank’sperformance within the period hassupported its share price. Profitability level has remained in an uptrend direction as surprises continue to hit the market,being the first Nigerian bank to record N100 billion profit mark. It also ranked number one in banks’ netassets and among the top twoin terms of profit margin, service delivery and risk management in its industry today.  

Within this period, the risk and cost management of the bank have 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. Earnings per shareremained strong and steady at 415 kobo regardless of over regulation in the industry and the unfriendly economic situation till date with high Monetary Policy Rate (MPR), tight liquidity, ascending inflation rate, dwindling discretionary income and falling naira value at the exchange market.  

The Earnings PerShare (EPS)rose from 304 kobo in 2013 to317 kobo in the following year which was sustained in 2015 and 2016, despite the industry headwinds during the years. As we have mentioned  earlier in this analysis that the bank’s 2016 full-year EPS of N4.13beats analysts and market expectations as rating agencies continued to downgrade Nigerian banks due to inherent risk  in the country, as a result of contraction in the economy. The improvement in bank’s Earnings Yield from 14.19% in 2013 to 28.03% attests toits quarterly and yearly earnings growth.

ZENITH BANK- ESTIMATED RATIOS
	2013	2014	2015	2015
Earnings Per Share	3.04	3.17	3.37	4.13
PE Ratio	7.05	6.00	3.95	3.57
Earnings Yield (%)	14.19	16.67	25.30	28.03
Book Value	16.22	17.60	18.93	22.44
ROE (%)	19.00	18.00	17.78	18.40
Profit Margin (%)	27.12	24.66	24.43	25.52
Year End	Dec	Dec	Dec	Dec