AGAIN, ZENITH BANK RECORDS ROBUST Q3 GROWTH, REMAINS LEADS PEERS IN PROFITABILITY

Zenith Bank has continued to demonstrate its high level of corporate governance that drives confidence  and supports numbers, as contained in its recently financials for the nine-month ended September 30, 2017 released to the investing public earlier than the date for the corresponding period of 2016, to allow investors plan their investment and forecast the banks performance.  The scorecard revealed the bank’s commitment, aggressiveness and track record of effective risk management that had reflected in its outstanding numbers that continues to support price and dividend payout.  

The bank in more than one decade of its listing on the Nigerian Stock Exchange has consistently grown its earnings and values on a quarterly and yearly basis which has also supported it dividend payout. The single-mindedness of the bank’s management in creating value for its stakeholders at all levels of operations continues to drive profitability, besides keeping it as number one in Nigerian in terms of profitability, earnings, deposit, total assets and net assets, besides being among Africa’s top 15 banks.

Actual Q3 numbers revealed remarkable performance as top and bottom lines flew northward, translating to 412 kobo Earnings Per Share on the profit of N129.24bn, which is well above market and analysts expectations.

Nevertheless, Zenith Bank's share price is yet to react to positive numbers as it continues to oscillate below the price of N26.31 per share as at released date.

Gross earnings remained robust, surpassing previous year's figure by 39.68%, from N380.35bn to N531.27bn, just as profit level for the period was up by 29.15% to N129.24bn from N100.07bn in 2016. Despite the marginal drop in earnings yield for the period, price moved by 78.37% to N26.31 as at released date from N14.75 in 2016.

The bank's cost of operation and credit loss provision for the period moved up by 22.21% and 115.23% respectively, thereby significantly eating into its bottom line as reflected in the profit margin that dropped by 7.53% to 24.33% from 26.31% in 2016. Shareholders’ funds notched 10.56% to N767.69bn from N695.65bn last year; while EPS for the period improved to 412 kobo from 319 kobo in 2016, representing a 29.15% growth that had reflected on it price movement.   

Zenith Bank’s Q3 EPS of 412 kobo is at par with that of its full year earnings in 2016, while the price to earnings ratio for period is 2.13x, which is higher than the 1.54x recorded in the same quarter last year. The bank's Book Value for the period stood at N24.45 while return on equity for same period improved relatively to 16.83% from 26.31% in 2016 which is an evidence of stronger profit and net assets for the period, indicating good performance as deposits increased but loans and advances dropped amidst the need to reduce non-performing loans which was fuelled by the nation’s slip into economic recession in 2016 and high inflation rate that continues to linger despite the decline recorded so far. The high interest rate environment created by the Central Bank of Nigeria (CBN) to attract foreign and local funds has boosted securities trading income among banks.  

ZENITH  BANK PLC
NINE MONTHS UNAUDITED REPORT  2017
COY	2016	2016
	(N)	(N)	% Chg
Date Released	October 21, 2016	October 19, 2017
Price as@ Released Date	14.75	26.31	78.37
Gross Earnings	380,352,000,000	531,266,000,000	39.54
Profit After Tax	100,074,000,000	129,235,000,000	29.15
Shareholders' Fund	695,649,000,000	767,690,000,000	10.52
ESTIMATED RATIOS
Earnings Per Share	3.19	4.12	29.15
PE Ratio	1.54	2.13	38.31
Earnings Yield	21.61	15.65	--21.17
Book Value	22.16	24.45	10.33
Price To Book	0.67	1.08	61.19
ROE (%)	14.39	16.83	16.96
Profit Margin	26.31	24.33	-7.53
Year End	Dec	Dec

  Source: NSE, Company Report and Investdata Research

As the bank continues to build capacity to drive investment and profitability  ratios, the actual  nine months earnings of stood at N4.12 per share, with yield the of 15.65% on the  market price of Zenith Bank  as at released date.  Retained earnings remained positive at N312.67bn from N220.3bn in 2016 a pointer to the fact that the possibility of higher dividend payment at the end of this financial year is high.  

The bank’s loans to deposits ratio is currently estimated at 70.39%; and debt to equity ratio at 5.68x. 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 2.13x earnings. Its 2017 financial year result upgraded guidance is indicative of stronger performance that it continues to churn out, especially as it beat expectations. Meanwhile, the Book Value of N24.45 reveals an under-priced situation as the bank is fairly priced at N38 which is at a discount of 48% of the current market value. 

  Analysts Opinion/Recommendations

Also, we expect earnings from the corporate and Investment Banking business segments to continue driving and supporting profit, going forward.  Consequently, we maintain our projection of full year EPS of N5.20 and upgrade to a final dividend payout of N2.00 from earlier projection of N1.95. Investors with medium and long-term goal, who desire to preserve capital, should look the way of this stock. Its Q3 result confirmed our earlier upgraded guidance after studying its quarterly results so far in the current financial year. Investment in the stock for the next 90 days will beat any form of returns from money market, treasure bills and bonds. On the dividend equalization policy of the bank with growth in payout, we expect a higher dividend  yield at the end of the year and put a BUY rating on Zenith Bank

Technical View

Zenith Bank’s price action for over one year has broken out of the black downtrend line to rally the resistant level of N26.99 and pullback in July to N22 in September before retracing up to recently form a double top that supports reversal of the current trend. It is trending up within a rising channel on a positive sentiment for its financials. RSI is reading 63.34 and money flow index is looking down to signal that funds are still exit the bank as a result of profit taking by traders. 

For over the past three years, the bank’s price action has formed a bullish chart pattern called inverted head and shoulder that supports continuation of uptrend, meaning that reversal of the current pullback is imminent, given that the trending ability and directional momentum are above ADX of 20 at 38. 

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 (2017)	N14.75
Closing Price at October 20, 2017	N26.31
Date Listed	21/10/2004
Year End	31st Dec.

Source: NSE, Company Report and Investdata Research

The bank’s conservative nature and prudence is paying off in its efforts to build a world-class institution 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 a factor that continually supports and drives profit to keep it among the top banks in Nigeria and Africa, in terms of market capitalisation, earnings, deposit, total assets and net assets. The bank’s branches within and outside the country, helped by professionalism in service delivery at all level, have demonstrated their capacity through the financials released over the past four years. Its innovations through the bank ICT platforms have   contributed to making all the figures green. Investors, on the other hand, have followed the outstanding performances of Zenith Bank over time, taking strategic positions which continue to reveal value in its stock, while creating wealth as investors smile to the banks on biannual bases.

Similarly, over the years, its Book Value has grown in the same direction from N16.22 in 2013 to N22.44, 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

Four-Year Performance (2013-2016)

A review of its performance in the past four years as revealed by the numbers in the table above and below, shows that Zenith 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 earnings power rose by 36.02% to N129.65bn from N95.32bn posted in 2013. Zenith Bank’s performance within the period has supported its share price. Profitability level has remained in an uptrend direction as surprises continue to hit the market from the first Nigerian bank to record the N100bn profit milestone. It also ranked number one in net assets and among the top two in 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 share remained strong and steady at 415 kobo regardless of strict 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. 

Zenith Bank Earnings Per Share (EPS) rose from 304 kobo in 2013 to 317 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 piece, the bank’s 2016 full-year EPS of N4.13 beat analysts and market expectations as rating agencies continue to downgrade Nigerian banks due to the inherent country risk , as a result of contraction in the economy. The improvement in the bank’s Earnings Yield from 14.19% in 2013 to 28.03% attests to its quarterly and yearly earnings growth.

ZENITH BANK- ESTIMATED RATIOS
	2013	2014	2015	2016
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