Zenith Bank 2021FY: Impressive Earnings, Profit, Higher Payout, Amid Hiccups

Zenith Bank Plc, on Monday, February 28, 2022 released its audited financial statements for the period ended December 31, 2021. A close analysis of the results showed that both Gross Earnings and Net Income, or Profit After Tax rose by 9.92% and 6.07%, settling at ₦765.56bn and ₦244.56bn respectively, compared to the figures for full-year 2020.

Markedly, the earnings performance was strongly driven by Non-Interest Income (NIC), particularly, the Trading Income which grew by 37.6% year-on-year. Maintaining a budding trend, Interest Income (IC) could only manage a growth of 1.6%, up from 1.2% in 2020, amid volatility in the yield environment following the COVID-19 pandemic which significantly impacted Foreign Portfolio Inflows (FPI) in the Fixed Income Market negatively.  

Interest income sees a marginal growth in 2021

Interest income settled at ₦427.60bn, representing 55.9% of the total GE, and was aided by 16.5% returns on loans and advances to customers amid expansion on credit creation, while Sovereign Bonds returns contributed 6.3%, as the government borrowed more in 2021 to fund the deficit budget. However, Placement with Other Financial Institutions (OFI) and Treasury bills returns dipped by 74.4% and 24.5% due to variability in rates/yields. The Loans’ book accounted for 68.3% of the total IC achieved.

Non-Interest income continues to look up

The Bank materially improved its Non-Interest Income (NIC) by 22.8% to ₦309.04bn, representing 40.4% of the GE. Notably, Trading gains (+37.6%), Fees and Commission Income (+31.0%) helped drive the NIC performance. However, other Operating Income dropped 25.9% y/y, capping the growth on the NIC.

Expenses were mixed as NPL improves

Interest expenses dipped by 11.8% y/y amid 25.6% drop in interest paid on all classes of customers’ deposits. The management noted here that the group’s drive for retail deposits (+21.2% y/y), combined with the strategic rebalancing of its funding base helped drive the drop and reduced the group’s cost of funds to 1.5% (2020: 2.0%). However, operating expenses (OPEX) rose by 13.1% amid sharp increase in costs of Information technology (+40.5% y/y), and AMCON levy (+22.5%). Loan Loss Provisions grew by a higher-than-anticipated 51.6% y/y amid economic disruptions brought about by COVID-19 pandemic and high inflation regime. Year-on-year, the NPL ratio declined to 4.2% (2020: 4.7%) despite the significant loan growth and challenging macro environment.

As noted earlier, Net income for the period settled at ₦244.56bn, resulting in earnings per share (EPS) of 778kobo, and Price/Earnings Ratio (PE) of 3.48x at the closing market price of ₦27.00 on Tuesday, 01 March 2022.

Dividend income to grease the palms of shareholders

Based on the above performance, the Directors of the Bank has recommended a Final Dividend of 280kobo per share to its shareholders whose names will featured on its Register on 25 March 2022. At current market price, Dividend Yield is 10.37%.

Compared to returns currently provided by other assets class, such as Treasury Bills and Bonds, the dividend yield of 10.37% is very attractive. Currently, it more than double the yield on the 1-year T-bill (+5.04%) and ranks closely with 5-year Bond (+10.37%) that matures in 2029.

The Bank is likely to continue to benefit from its aggressive retail strategy and expected pick-up on yields in H2 ’22, thereby positively impacting on NIC and Fee and Commission Income. Accordingly, we maintain our BUY recommendation on ZENITH. Note that we currently have a BUY target on ZENITH at ₦32.50, representing an upside potential of 20.37% against current market price of ₦27.00.  

Zenith Bank Plc Profile

Zenith Bank Plc was incorporated on 30 May 1990 and was granted a banking licence in June 1990. The principal activity of the Bank is the provision of banking and other financial services to corporate and individual customers. Such services include granting of loans and advances, corporate finance, and money market activities. The Bank has six subsidiary companies namely, Zenith Bank (Ghana) Ltd, Zenith Pension Custodian (Nigeria) Ltd, Zenith Bank (UK) Ltd, Zenith Bank (Sierra Leone) Ltd, Zenith Bank (Gambia) Ltd and Zenith Nominees Ltd.