ZENITH BANK 2020H1: 45.6% Growth Pushes Loan Size Closer To Regulatory Target
Current Market Price: N16.95
Year High: N23.00
Year Low: N10.70
Fair Value: N35.68
Equity Analyst: Tunde Segun Jeariogbe
- 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|
|Bourse||Nigerian Stock Exchange|
|Code Name||ZENITH INT’L PLC|
|Market Classification||Premium Board|
|Nature of Business||Commercial Banking|
|Date of Incorporation||May 30th 1990|
|Date Listed||October 21st 2004|
|End of Accounting Year||31st December|
|Registrar||VERITAS REGISTRARS LIMITED|
|Share Price@Relsd (N)||16.95|
|Earnings per Share||3.31|
- 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|
|NET INTEREST INCOME||157,409,000,000||142,515,000,000||10.45|
|TOTAL COMP INCOME||125,538,000,000||82,876,000,000||51.48|
|Statement of Financial Position|
|Property, Plant &Equipments||186,827,000,000||167,881,000,000||11.29|
|Total Loans and Advances||2,624,367,000,000||1,801,833,000,000||45.65|
- 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|
|Total Debt to Equity Ratio (MRQ)||666.46%||619.77%||7.53|
|TICKERS||ZENITH INT’L PLC||Industrial Average||%CHG|
- 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.
|EFFECTIVE TAX RATE||9.02%||20.41%||55.79|
|IE TO GE||17.21%||21.74%||20.86|
- 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.
|OPEX TO GE||35.14%||34.84%||0.84|
|GE TO TA||4.57%||5.62%||18.78|
- 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|
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.