Company Analysis

ZENITH BANK 2020H1: 45.6% Growth Pushes Loan Size Closer To Regulatory Target

Rating: Buy
Current Market Price: N16.95
Year High: N23.00
Year Low: N10.70
Fair Value: N35.68
Equity AnalystTunde Segun Jeariogbe

Introduction

  • This report viewed the half-year financial performance of Zenith Bank Plc for the period ended 30th June, 2020, compared same with similar results for 2019 to establish growth trend.
  • As in the previous half-year, the management of Zenith Bank announced an interim cash dividend of 30 kobo per share, in line with several analysts’ expectation.
  • Qualification date for the said cash dividend is 16th September, 2020, while payment is slated for 22nd September, 2020.
  • In our attempt to match valuation with economic growth expectations, we have mildly re-valued Zenith Bank’s share price up from our previous valuation. This, in our opinion, is conservative enough and reveals the true stand of the economic reality.
  • See below for further analysis.
ZENITH INT’L PLC
BourseNigerian Stock Exchange
Code NameZENITH INT’L PLC
SectorFINANCIAL SERVICES
Market ClassificationPremium Board
Nature of BusinessCommercial Banking
Date of IncorporationMay 30th 1990
Date ListedOctober 21st 2004
End of Accounting Year31st December
Websitewww.zenithbank.com
RegistrarVERITAS REGISTRARS LIMITED
AuditorPricewaterhouseCoopers
Share Price@Relsd (N)                                                       16.95
Earnings per Share                                                         3.31
Intrinsic Value(N)                                                       35.68
Share Outstanding31,396,493,786
Market Capitalisation                                     532,170,569,673

Company figures

  • Gross Earnings posted for the period under review was N346.08 billion, same as a 4.37% improvement over the N331.58 billion achieved at the end of 2019 half–year.
  • Interest Income inched north by 1.10% from the previously reported N214.60 billion to N216.95 billion.
  • On the other hand, Interest Expense stood at 17.40% below the comparable period to N59.54 billion, versus N72.08 billion in the corresponding quarter.
  • Net Interest Income was estimated at N157.40 billion, 10.45% above the N142.51 billion achieved at the end of the first six months of 2019.
  • Operating Expenses marginally built up by 5.26% to N121.59 billion, as against the N115.52 billion in 2019 half-year.
  • Profit before Tax was estimated at N114.12 billion, which is a 2.19% improvement over 2019 half-year estimate.
  • Helped by lower income tax expense, Profit reported for the period stood above corresponding quarter’s profit by 16.81% at N103.82 billion, as against the previous N88.88 billion.
ZENITH INT’L PLC
Statement of Comprehensive Income
 20202019%CHG
GROSS EARNINGS               346,088,000,000           331,586,000,0004.37
INTEREST INCOME               216,954,000,000           214,601,000,0001.10
INTEREST EXPENSES                 59,545,000,000              72,086,000,00017.40
NET INTEREST INCOME               157,409,000,000           142,515,000,00010.45
OPEX               121,599,000,000           115,528,000,0005.26
DEPRECIATION                 12,471,000,000                9,791,000,00027.37
AMORTISATION                    1,778,000,000                1,514,000,00017.44
PBT               114,124,000,000           111,677,000,0002.19
TAX                 10,298,000,000              22,795,000,00054.82
PAT               103,826,000,000              88,882,000,00016.81
TOTAL COMP INCOME               125,538,000,000              82,876,000,00051.48
Statement of Financial Position
Total Assets           7,580,114,000,000        5,898,596,000,00028.51
Total Liabilities           6,591,136,000,000        5,079,082,000,00029.77
Net Assets               988,978,000,000           819,514,000,00020.68
Property, Plant &Equipments               186,827,000,000           167,881,000,00011.29
Retained Earnings               420,195,000,000           314,695,000,00033.52
Total Deposits           4,904,998,000,000        3,810,025,000,00028.74
Total Loans and Advances           2,624,367,000,000        1,801,833,000,00045.65
Zenith Bank 2020H1 Statement of comprehensive income
  • Total Assets grew by 28.51% over the 2019 half-year valuation, following which assets are currently valued at N7.58 trillion, up from the N5.89 trillion in the corresponding quarter of last year.
  • Total Liabilities also grew by 29.77% to N6.59 trillion, as against N5.07 trillion in the similar period of 2019.
  • Net Assets is currently valued at N988.97 billion, representing 20.68% above the previous N819.51 billion estimate.
  • Retained Earnings improved by 33.52% from the previous estimate of N314.69 billion versus N420.19 billion.
  • Total Deposits equally appreciated to N4.90 trillion, a 28.74% growth over the N3.81 trillion achieved at the end of 2019 full-year.
  • Total Loan and Advances for the period grew by 45.65% to N2.62 trillion, versus N1.80 trillion.

Financial Strength/Solvency Ratios

  • Debt Ratio was stable through the two compared periods inching from 86.95% to 86.11%, signifying a controlled assets ratio through the period.
  • Total Debt to Equity was estimated at 666.46%, same as 7.53% above the 619.77% in the 2019 half-year, which implies that Total Debt (Deposit inclusive) can replicate equity 6.66 times.
  • Similarly Equity Ratio was stable within the two periods compared at 13.05% from 13.89% in the corresponding quarter.
  • We have, therefore, estimated a Beta value above the market Beta for Zenith Bank Plc shares. Please note that at 1.10 beta value, it’s still below the industrial average of 1.15.
Financial Strength/Solvency Ratio
TICKERS20202019%CHG
Debt Ratio86.95%86.11%0.98
Total Debt to Equity Ratio (MRQ)666.46%619.77%7.53
Equity Ratio13.05%13.89%6.09
TICKERSZENITH INT’L PLCIndustrial Average%CHG
Beta Value                                       1.10                                   1.154.35
Zenith Bank 2020H1 Financial stength/solvency

Profitability Ratios

  • Pre-Tax Margin stood at 32.98%, a marginal growth of 2.09% from the last estimate of 33.68% at the end of 2019 half year business.
  • Interest Expense for the period is same as 17.21% of the Estimated Gross Earnings figure; which is a reduced position when compared with the previously estimated 21.74%.
  • Return Achieved on Average Equity used through the period was estimated at 10.50%, which is below the 10.85% return achieved in the 2019 half-year.
  • See the table below for detailed profitability ratios and comparisons.
PROFITABILITY RATIOS
TICKERS20202019%CHG
PRE-TAX MARGIN32.98%33.68%2.09
EFFECTIVE TAX RATE9.02%20.41%55.79
IE TO GE17.21%21.74%20.86
ROAE10.50%10.85%3.20
ROAA1.37%1.51%9.10
Zenith Bank 2020H1 Profitability Ratio

Efficiency Ratios

  • Operating Expenses is an estimated 35.14% of the Gross Earnings Value for the period, representing a marginal growth over the 34.84% estimated from the 2019 half-year numbers.
  • Similarly, Gross Earnings was an estimated 4.57% of Total Assets, which is a 18.78% drop in efficiency when compared to estimate from the corresponding period.
  • Total Loan to Deposit Ratio achieved at the end of the quarter stood at 53.50% up from the 47.29% achieved in 2019 half year.
EFFICIENCY RATIOS
 20202019 
OPEX TO GE35.14%34.84%0.84
GE TO TA4.57%5.62%18.78
LDR53.50%47.29%13.14
Capex/Share                                       1.06                                   1.2414.45
Zenith Bank: Efficiency Ratios 2020HI

Investment/Valuation Ratios

  • Profit made per unit of Zenith Bank at the end of the quarter is estimated at N3.31, as against the previously estimated N2.83 each.
  • Total Comprehensive Income per share is estimated at N4.00, versus N2.64 in the comparable period of last year.
  • Price to Earnings Ratio adjusted for the half-year stood at 1.28x, as against 1.50x in 2019.
  • The said earnings per share is same as 19.51% of the current market price of Zenith Bank Plc shares on the exchange when the result was released; a better yield when compared to the previous half-year estimate.
  • The current Book Value of Zenith Bank is N31.50, a 20.68% improvement over the N26.10 estimated last year.
  • Confirming a seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity.
ZENITH INT’L PLC
Investment/Valuation Ratios
Tickers20202019%Chg
EPS3.312.8316.81
TCIP/SHARE4.002.6451.48
P/E-Ratio1.281.5014.65
Earnings Yield19.51%16.65%17.16
BV/Share31.5026.1020.68
PBV0.540.6517.38
LDR53.50%  47.29%13.14
Zenith Bank Investment/Valuation Ratios

Valuation

As noted in our intro above, we fairly adjusted our fair value for each unit of Zenith Bank Plc shares to N35.68. Considering the difference between the current market price of the equity on the exchange and our achieved fair value, we have rated it a Buy.

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