Can Zenith Bank Sustain, Convert Robust H1 Asset Growth To Juicier Profit At Full-Year?

Tunde Segun Jeariogbe

Pix: Dame Adaora Omeoji, GMD, Zenith Bank Plc

Quarter Under Preview: Half Year

Current Share Price: N69.00

Latest Interim Dividend: N1.25

Estimated Beta Value: 0.61x

Estimated Intrinsic Value: N61.09

The Bank

Zenith Bank Plc is engaged in the provision of banking and other financial services to corporate and individual customers. Its services include granting of loans and advances, corporate finance, and money market activities. Its segments include Corporate, Public, Retail Banking, Pension Custodial services and Nominee-Nigeria, and Outside Nigeria Banking-Africa and Europe.

The Corporate, Public, Retail Banking, Pension Custodial services and Nominee-Nigeria segment offer banking and pension custodial services to financial institutions, investment funds, governments, and individuals. The Outside Nigeria Banking-Africa and Europe segments offer banking services to a diverse group of corporations, financial institutions, investment funds, governments, and individuals outside Nigeria. It covers banking operations in other parts of Africa (Ghana, Sierra Leone, and The Gambia) and in Europe (the United Kingdom) respectively.

FINANCIAL PERFORMANCE

Excerpts from the released numbers representing the financial performance of the bank through the first six months of 2025, reveal that Gross Earnings improved by 19.96% to stand at N2.520 trillion compared to N2.101 trillion reported in 2024. Interest Income for the period stood at N1.839 trillion, as against N1.149 trillion in the similar quarter of last year. Interest Expenses, on the other hand, is estimated for N484.524 billion against N434.363 in the comparable period.

Operating Expenses rose by 21.54% to N545.855 billion from N449.129 billion. Profit for the Period stood at N532.180 billion, slightly below the N577.997 billion in the previous half year. Total Comprehensive Income dropped against comparable period by 28.22%; see the below table for details.

Total Assets is Currently Estimated at N30.992 trillion, against the N27.575 trillion at the end of full-year 2024; while Total Liability through the period is currently valued at N26.424 trillion, same as 8.38% above the N24.381 billion as of December 31, 2024. Total Deposit improved by 19.61% to N23.483 trillion, while Total Loans and Advances for the period came lower at N12.635 trillion. See the above table for details.

Financial Strength

We have estimated the Debt Ratio at 85.26% as against 88.42% in the comparable period of last year. This is shows that leverage has reduced, the bank relies slightly less on debt financing than last year. It is also an implication that, Financial risk has declined, since a lower share of assets is funded by external obligations, the bank is in a relatively safer position. It is also an indication that Solvency improved. See below for details:

Profitability Ratios

EBITDA Margin improved by 39.44% to 58.86%, against the previous 42.21% indicating a stronger operating profitability, improved efficiency, better cash generation and positive year-on-year performance. With EBITDA Margin improving at the same time that Pre-Tax Margin fell, it is therefore clear that the issue is not at the operating level but further down. This can then be traced to the increased depreciation and amortization figure reported in the current year against the previous quarter. Nevertheless, we can safely conclude that the business is more efficient at generating operating profit (EBITDA margin up), but have eroded pretax profitability, reducing pretax margin from 34.60% to 24.82%. See below for other estimated ratios:

Efficiency Ratios

The management experienced slight increase in expense burden as the Operating Expenses to Gross Earnings Ratio moved from the estimated 21.37% in the previous quarter to 21.65% at the end of this quarter. This indicates a mild increase in cost pressure, which if sustained, could compress margins. Similarly, the Gross Earnings to Total Assets ratio is estimated at 8.13% from 7.62%, showing an improvement in asset efficiency, better revenue productivity, and this is positive for performance. At 53.80% Loan to Deposit ratio, the bank is conservative, prioritizing liquidity and safety over aggressive lending, this is a welcome idea considering the state of the economy through the business session.

Investment Ratios

Revealing the slight drop in the Profit reported for the period, the amount earned per unit of its shares stood at N12.96 same as 29.61% lower than the N18.41 achieved in the corresponding period. Similarly Total Comprehensive Income is now valued at N17.14, lower than the previous estimate of N31.23 by 45.13%. The said Earnings yielded 20.25% below the 48.13% in the comparable period.

Going by the estimated investment ratios, we are of the opinion that investors should exercise caution, the stock is more expensive on a P/E basis while earnings are weaker. This could mean limited upside, unless profitability improves:

In conclusion we recommend a cautious position for investors, Hold for now, supported by strong book value, but declining EPS and rising P/E ratio suggest waiting to see if earnings rebound before aggressive buying. On the other hand, management should focus on restoring earnings momentum, ensuring that rising assets values translate into higher profitability.