**Rating: Buy**

**Current Market Price: N24.25**

**LATES INTERIM DIVIDEND: N0.30**

**Year High: N27.50**

**Year Low: N 19.50**

**Fair Value: N39.70**

**By: Jeariogbe Tunde Segun (Equity Analyst)**

**Key Financial Ratios**

- In this report, we observed the half-year financial performance indices of Zenith Bank Plc for the period ended 30
^{th}June 2021, compared same with the similar quarter in 2020 to establish growth and make a comparison. - As in the other periods, the management of Zenith Bank announced an interim cash dividend of 30 kobo, the same as in the previous half-year. Details of the said dividend are explained later in this report.
- Performance in the quarter showed a lower Turnover and a slight growth in the profit for the period.
- In other words, performance at the end of the quarter is almost the same as in the corresponding quarter. This explains the equal interim cash dividend paid as against the corresponding period.
- See below for other performance indices comparisons.

**Interim Dividend Details**

- As noted above, a total of N0.30 cash dividend had been announced as the half-year incentive for shareholders
- The said dividend is the same as what was paid in the corresponding quarter of 2020. Estimates showed that the 30k is 8.88% of the total amount earned as profit for the period, this is slightly below the 9.07% pay-out ratio done in the 2020 half-year
- Also, the said dividend is 1.23% of the share price of Zenith Bank on the exchange as of the time the report was presented to investors.
- Note that the registrars’ book shall be closed in respect of the said cash interim dividend on the 13th September 2021.
- In other words, the qualification date for the interim dividend is 10th September 2021, while the payment is scheduled for 20th September 2021.

**Company Figures**

- Gross Earnings for the period stemmed below that of the comparable quarter by a marginal 0.15%, from N346.08 billion to N345.55 billion.
- Interest Income equally dipped to N203.93 billion from N216.95 billion, the difference between both financial indices is 6.00%.
- Interest Expense dropped to N43.99 billion, against the N59.54 billion in the 2020 half-year, after dropping by 26.12%.
- Operating Expenses at the end of the six-month period was valued at N135.15 billion, versus N121.59 billion in the corresponding period.
- Profit before Tax for the period under review improved by marginal 2.57% to N117.05 billion, against N114.12billion in the prior half-year.
- Similarly, net profit for the year grew by a marginal 2.21% to N106.11 billion, from N103.82 billion.
- Total Comprehensive Income, on the other hand, dipped by 11.74% at N110.79 billion, compared to N1125.53 billion posted at the end of 2020 half-year.

- Total Assets of Zenith Bank is currently valued at N8.515 trillion, against N7.580 trillion in 2020.
- Total Liabilities equally grew by 11.85% to N7.372 trillion, compared to N6.591 trillion in the corresponding quarter.
- Net Assets, a key financial index, rose to N1.143 trillion, an improvement over the N988.97 billion reported in the corresponding period of last year.
- Retained Earnings appreciated by 23.75% to N519.99 billion, compared to N420.19 billion in the similar period of 2020.
- The group improved customer deposits by 17.64%. Total Deposits received through the half-year is the same as N5.770 trillion, against N4.904 trillion.
- Total Loans and Advances improved by 33.13% when compared to 2020. The total Loans and Advances stood at N3.493 trillion, as against N2.624 trillion.

**Volatility Ratios**

- Debt Ratio, which compares Total Assets to Total Liabilities stood at 86.57%, implying that the Total Liabilities is 86.57% of Total Assets. Note that Total Liabilities is inclusive of Total Deposits for the period.
- Total Debt to Equity for the quarter stood at 6.45x, the same as 3.26% below the 6.66x estimated in 2020. This implies that the company used 6.45 times of its equity through the period (note debt used is total liabilities, which includes total deposits for the period)
- Equity Ratio which compared Equity to Total Assets, stood at 13.43% against 13.05%, implying that Equity value at the end of the period is 13.43% of Zenith Bank’s Total Assets.
- Estimated Beta value for Zenith Bank at the time this report was compiled stood at 1.15x, which is above market beta and its industry average for the period.

**Profitability Ratios**

- Pre-Tax Margin grew by 2.73% to 33.88%, against the 32.98% estimated at the end of 2020
- Interest Expenses to Gross Earnings adjusted down by 11.60% as it moved to 9.28% against the previously estimated 10.50%
- Return on Average Equity through the first six months of 2021 was estimated to be 9.28% against 10.50% in the corresponding period
- See below table for detailed profitability ratios and comparison:

**Efficiency Ratio**

- Operating Expenses at the end of the period is estimated at 39.11% of the estimated Gross Earnings, which is higher than the 35.14% achieved in 2020 half-year financials. Note that this implies an increased rate of expenses against Gross Earnings.
- Gross Earnings estimated from the bank financials is the same as 4.06% of the Total Assets value posted for the period under analysis.
- Total Loan and Advances as a percentage of Total Deposit for the six months is 60.55%, a higher rate when compared to 53.50% at the end of 2020 second quarter.

**Investment Ratios**

- The profit earned per unit of Zenith Bank at the end of the period under review is estimated at N3.38 a slight growth over the N3.31 earned in the 2020 corresponding period.
- Total Comprehensive Income per share is estimated at N3.53, an 11.74% drop below the N4.00 TCI/share achieved in 2020.
- Our six-month adjusted P/E-Ratio grew to 1.80x from 1.28x, implying a marginal improvement in investor sentiments for the shares of Zenith Bank within the period.
- The said earnings per share is a yield of 13.85% of the price of Zenith Bank shares on the exchange on the day the result was unveiled to the investing public through the exchange.
- Estimated value of each unit of Zenith Bank shares in its book is N36.42, a 15.62% improvement on the previous book value of N31.50 each.
- Confirming the academic under-priced status of Zenith Bank shares on the exchange is the Price to Book Value estimate at below unity.

**Valuation**

Assuming a constant growth rate of the current dividend of Zenith Bank, especially since figures and dividends hardly overrun the previous quarter; the constant perpetual growth rate of the Gordon Growth Model was put to use. Assuming our discount rate at 91-Day T-bill Rate, and making use of the estimated sustainable growth rate (in the last full-year report); we arrived at **N39.70** valuation for each unit of Zenith Bank. Thus, we have therefore rated Zenith Bank a **BUY**.