Zenith Bank Leads Peers On 2019Q3 Profit, NGSE Dividend Yield’s Table

The board of Zenith Bank Plc, recently published its unaudited financials for the nine-month ended September 30, 2019, in line with its post-listing requirements of the Nigerian Stock Exchange (NSE).

The numbers, which came slightly later, when compared to the released date of the 2018 nine-month scorecard, showed that the bank’s management kept fate with its track record of growing it's earnings on a quarterly and yearly basis over the last two decades.

The bank also continues its culture of effective and strategic risk management which has kept its Non-Performing Loan ratio within the regulatory threshold of 5.0%, with its 2019Q3 at 4.95%, lower than the full-year 2018 position of 4.98%. This reflects the bank’s high asset quality that supports its outstanding numbers that point to a higher dividend payout at the end of the current financial year.

The management’s commitment to creating value for stakeholders at all levels is evident in its operations that continue to drive profitability and other investment ratios, despite the expectation that the mandatory loan to deposit ratio will weigh down on banks’ earnings. 

The bank’s Q3 numbers reveal mild performance as gross earnings and bottom line inched up, producing N4.80 Earnings Per Share (EPS) on the profit of N150.72bn. This was driven by stronger trading and fee income for the period, from 459 kobo in 2018, representing a 4.8% growth.

Nevertheless, Zenith Bank’s profit before tax on a quarterly basis stayed strong in Q3 at N64.5bn, the best in 11 quarters and market, even as it is yet to react to such positive numbers as it continues to oscillate below the price of N18 per share as at released date.

Top-line was marginally higher than the previous year’s figure by 3.51%, from N474.61bn to N491.27bn, just as profit for the period rose by 4.54% to N150.72bn, from N144.18bn in 2018. The drop in market value for the period, reflected on the earnings yield, as it moved 27.83% up at released date from 20.4% in 2018.

The bank’s cost of operation stayed flat at 0.8%, while loan loss provision for the period moved up 27.3%, thereby significantly eating into its bottom line, as reflected in the profit margin that inched up by 1.58% to 30.86% from 30.38% in 2018. Net Assets rose by 11.99% to N871.15bn, from N777.9bn, in the preceding nine-month.

The Q3 adjusted Price to Earnings ratio for the period was 1.2x, which is lower than the 1.63x recorded in the similar quarter of last year. The bank’s Book Value for the period stood at N27.75 per share, while Return On Equity for the same period improved relatively to 17.3%, from 16.53% in 2018 which is evidence of improved profit and shareholders’ fund for the period.


The bank continues enhancing its capacity to drive investment and profit ratios, as shown by the nine-month earnings at N4.80 per share, with a yield of 27.83% on the market as at released date. Retained earnings remained positive at N362.33bn, from N310.8bn in 2018, a pointer to the possibility of an increased dividend payout at the end of this financial year is high.

Loan to Deposit Ratio is currently estimated at 51.7%; while Cost to Income Ratio at 42.1x. The consistent growth of its Book Value and high margin of safety are encouraging and exciting for discerning investors and traders.

Valuation

The bank’s current share price is considered very attractive at 1.2x earnings, just as its 2019 financial year result upgraded guidance is indicative of the stronger performance that it continues to churn out, especially as it beat expectations. Meanwhile, the Book Value of N27.75 reveals an underpriced situation as the bank is fairly priced at N35 which is at a discount of 105.88% of the current market value.

Analysts Opinion/Recommendations
Also, we expect earnings from trading and fee income to continue driving and supporting profit, going forward.

Consequently, we maintain our projection of full-year EPS of N5.85 and upgrade the final dividend payout to N2.95, from the earlier projection of N2.90.
Traders and investors with whether short, medium, or long-term goals, desirous of preserving capital, should look the way of this stock, even as its Q3 result confirms 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 the money market, treasury 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
 

The price action of Zenith Bank for over the past three years has broken various support levels to remain in a bearish channel to test strong support level of N16.35 before rebounding to pull back again. It is trending up within a down channel on a negative sentiment despite financials news. RSI is reading 37.92 and the money flow index is looking down, a sign that funds are still exiting the bank’s shares as a result of investor concerns over the state of the economy.

Over the past three years, as mentioned earlier, the bank’s price action has formed a candlestick pattern at the bearish engulfing candle that supports the continuation of the trend. The bank is trading below its shortest moving average of 7, 14 and 21.


Four-Year Performance (2015-2018)
The price action of Zenith Bank for over the past three years has broken various support levels to remain in a bearish channel to test strong support level of N16.35 before rebounding to pull back again. It is trending up within a down channel on a negative sentiment despite financials news. RSI is reading 37.92 and the money flow index is looking down, a sign that funds are still exiting the bank’s shares as a result of investor concerns over the state of the economy.

Over the past three years, as mentioned earlier, the bank’s price action has formed a candlestick pattern at the bearish engulfing candle that supports continuation of the trend. The bank is trading below its shortest moving average of 7, 14 and 21.


Costs, risk management, and prudence is paying off in Zenith Bank’s efforts to build a world-class institution with steady growth in terms of profit, dividend payout, which have continued to impact the economy through its social responsibilities. Also, the bank has demonstrated doggedness so far, with retail banking and other segments continually supporting and driving profit.

Similarly, over the years, Book Value has grown in the same direction from N18.93 in 2015 to N22.44 in 2016 to N26.15 in 2017and finally N25.98. Finally on Investor confidence and expected supported its price as valuation tools placed the bank’s stock at N32.

Ambrose Omordion
CRO|Investdata Consulting Ltd
info@investdataonline.com
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