Company Analysis

Despite Pandemic, Zenith Bank Sustains Earnings, Profit, Dividend Growth

On Tuesday, February 23, 2020, Zenith Bank published its audited financials for the full-year ended December 31, 2020, becoming the third quoted company to do so through the Nigerian Stock Exchange (NSE) ahead of the 60-day deadline.

The report confirms, among others, that it has grown its earnings on yearly basis, while sustaining its risk management efforts, as shown in the management’s ability to contain impairment charges over the years, thereby enhancing profit. This is in addition to maintaining assets of high quality, and a robust balance sheet that supports its outstanding performance, despite the challenging operating environment, leading to high dividend payout.

Source: Company financials, NSE, Investdata Research

The management’s ability to create value for stakeholders is evident in its earnings power and investment ratios, and the deposits with which it has grown the loan book, as well as Loan-Deposit Ratio to 67.22%, from 54.09% in the corresponding period of 2019, surpassing the Central Bank of Nigeria’s 65% regulatory threshold.

According to the bank’s numbers, Gross Earnings grew of 5.2% to ₦696.45 billion, 60.4% of which was the Interest Income (NI) of ₦420.81 billion, up by 1.3%, as well as the 39.6% increase in non-interest income (NIC) at ₦275.64 billion.

Notwithstanding the low-interest rate environment necessitated by the CBN’s 200bps tweak in Monetary Policy Rate in the year, returns on Loans and Advances to Customers (LAC) rose by 7.7% y/y, compared with a contraction of 14.7% y/y in 2019. Markedly, LAC dominated the total NI by 59.6%, which is commendable considering the challenging macroeconomic environment exacerbated by the COVID-19 pandemic in the year.

Cost line items were relatively mixed in the year.

While interest expenses got compressed by 18.5%, due to the lower interest rate environment, OPEX (inclusive of personal, depreciation and amortization costs) rose by 10.4% to ₦256.03 billion amid the upsurge in information technology and fuel & maintenance costs by 107.6%and 23.2% respectively. The spike in information technology was driven by the new business norm – social distancing and the nationwide lockdown imposed to check the spread of the virus across the globe, especially in Q2’20, such that the bank like others, effectively utilized digital technology to service its business. As such, OPEX margin increased by 1.76% y/y.

Meanwhile, loan impairment expenses rose by 64.5% to₦39.53 billion, much in line with the industry trend, following which it the management made additional provision to cover for the last quarter of the year.

With the upside in the income heads, coupled with relatively subdued OPEX, pre-tax profit rose 5.2% to ₦255.86 billion y/y; total tax liability dropped by 26.6% compensated for by the absence of dividend tax liability. while profit after tax rose by 10.4% to ₦230.57 billion.

At this income level, earnings per share (EPS) moved up to734 kobo, 10.4% higher than the 665 kobo achieved in the corresponding period of 2019, giving a Price/Earnings Ratio (PE) of 3.58x at its market price of ₦26.30 posted on Wednesday, February 24, 2021.

Capital Adequacy Ratio (CAR) closed the period at 23%, a big buffer when compared to the regulatory minimum of 15% for the industry. Although loan book expanded by 20.5% to ₦2.78 trillion y/y, however Loan-Deposit-Ratio (LDR) increased to 67.22% (vs 54.09% in 2019). The bank’s short-term liquidity ratio is healthy at current 1.41x, indicating its ability to fulfill debt obligations as they fall due.

Source: NSE, Company Report and Investdata Research

Much in line with observation amongst peers, the bank’s cash and balances with the CBN jumped by 70.1% to ₦1.59 trillion, of which over ₦1.49 trillion or 93.5% represents mandatory and special reserves deposits. This is not surprising, as most operators continue to insist that effective CRR ranges from 50% to +75% amid the apex banks heterodox policy mix and stringent LDR control. The bank’s Total Asset grew by 33.6% to ₦8.48 trillion, while Total Liabilities jumped 36.2% up to ₦7.36 trillion, pushing debt ratio to 0.87x (vs 0.85x in 2019). Importantly, shareholders’ equity improved by 18.6% to ₦1.12 trillion, just as Book Value Per Share (BVPS) moved up to 35.59 (vs ₦30.00 in 2019).


The bank’s current share price is considered very attractive at 3.58x earnings, being an income stock trading above industry average by 6.23%. On the strength of the 2020 financials, we have upgraded guidance, indicative of the stronger performance from the board, especially as the numbers remain impressive.

Consequently, at N35.59 each, Zenith Bank’s Book Value reveals its undervalued status following which, the bank is fairly priced at N40per share, which is a 51.17% discount to the current market value.

Analysts Opinion/Recommendations

Also, we expect earnings from interest income, trading and fee income to continue driving and supporting profit, going forward. 

We therefore project positive quarterly and full year numbers for 2021, following which traders and investors desirous of preserving capital, no matter the investment goals, should look the way of this stock, given that its full year performance confirms our earlier forecast, and guidance.

Investment in the stock for the next 90 days will beat any form of returns from other windows whether Treasury Bills, Bonds, or fixed deposit. On this note, we place a BUY rating on Zenith Bank

Technical View

Source: Company financials, NSE, Investdata Research

Zenith Bank’s price action has remained bullish since April, after rebounding from a low of N10.85 on positive sentiment, improved liquidity and impressive financials that has formed a saucer chart pattern that supports an uptrend. The pullback has stayed within the channel as the market reacts to the full year dividend news.

RSI is reading 49.13 and money flow index is looking down, a sign that profit takers are still selling ahead of markdown, owing to the rising yields in the fixed income market. It is worthy of note that the bank’s Money Flow Index is above 60.

Four-Year Performance (2017-2020)

An analysis of the bank’s performance over the past four years shows a consistent improvement in the top and bottom lines, except for 2018 when there was a slowdown in the investment and profitability ratios. The high and low performance is revealed by the numbers in the tables below.

Specifically, gross earnings for the period oscillated to reflect changes in the economy, moving down to N630.34 billion in 2018 from N745.19 billion in 2017, which has since been followed by a sustained uptrend to N696.45 billion in 2020.

Profit has also constantly been on the uptrend within the period, translating to a 30% growth at N230.57 billion, from N177.61 billion in 2017, following which Earnings Per Share remained strong and steady at N7.34 each, despite the heightened regulation in the industry and unfriendly operating environment.

Earnings capacity rose from 566 kobo in 2017 to 616 kobo in 2018, and then 665 kobo and 734 kobo in 2019 and 2020 respectively, despite the various headwinds in the banking industry during the year under review. 

The bank’s risk management efforts are paying off as shown in the Non-Performing Loans ratio and improved profit margin that has supported the steady growth in profit, dividend payout and impact on the economy.

Also, the bank has demonstrated some measure of doggedness in growing its retail banking business, as well as other factors that continually support and drive profitability.

Investors, on the other hand, have followed the bank’s outstanding performances over time, taking strategic positions especially given the inherent value, while creating wealth as investors smile to the banks on a bi-annual basis. Similarly, over the years, Book Value has grown in the same direction, after a little slide to N25.98 in 2018 from N26.15 in 2017, before the trend was reversed following which it grew by N30.00 in 2019, maintaining the trend in 2020, when it posted N35.59 each on consistent earnings growth. This has also translated to improved Investor confidence, which is expected to support the price, especially as valuation tools place the bank’s stock at N40per share.

Ambrose Omordion

CRO|Investdata Consulting Ltd

Tel: 08028164085, 08032055467

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