**Rating**: Buy**Current Market Price**: N22.20**Year High**: N27.50**Year Low**: N19.50**Fair Value**: N39.74**Equity Analyst**: Tunde Segun Jeariogbe

**Introduction**

- This report reviewed the first quarter financial performance indices of Zenith Bank Plc for the period ended 31
^{st }March, 2021, compare same with the similar numbers of 2020 to establish growth. - The first quarter numbers show a mild growth, when compared to those of the corresponding quarter in 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 reality of the nation’s economy.
- See below for further analysis:

**Company Figures**

- Gross Earnings for the quarter was N157.30 billion, same as 5.70% below the N166.81 billion achieved at the end of 2020 first quarter.
- Interest Income inched south by 11.51%, from the previously reported N114.33 billion to N101.17 billion.
- On the other hand, Interest Expense stood 45.15% below the comparable period at N18.00 billion, versus N32.89 billion in the previous year’s first quarter.
- Net Interest Income was estimated at N83.16 billion, 2.05% above the N81.50 billion achieved at the end of the first three months of 2020.
- Operating Expenses marginally built up by 7.65% to N62.80 billion, as against N58.34 billion in 2020 first quarter.
- Profit before Tax was estimated at N61.02 billion, this is only a 3.80% improvement over the 2020 first-quarter estimate.
- Having adjusted for tax expense for the quarter, the management of Zenith Bank reported a Profit after Tax of N53.06 billion, which is 5.02% above the N50.52 billion reported in the corresponding period.

- Total Assets grew by 21.81% over the 2020 first quarter valuation, just as total asset rose to N8.68 trillion from N7.12 trillion in the period.
- Total Liabilities also grew by 22.40% to N7.59 trillion, as against N6.20 trillion in the similar period of 2020.
- Net Assets is currently valued at N1.09 trillion same as 14.57% above the previous estimate of N952.94 billion.
- Retained Earnings improved by 30.69% from the previous estimate of N374.09 billion to N488.84 billion.
- Total Deposits equally appreciated to N5.67 trillion, a 27.16% growth from N4.46 trillion achieved at the end of 2020 first quarter business session.
- Total Loan and Advances for the period dropped marginally by 5.21% to N3.40 trillion, versus N3.58 trillion in the comparable period in 2020.

**Financial Strength/Solvency Ratios**

- The debt Ratio was stable through the two compared periods, inching from 87.01% to 87.43%, signifying a controlled assets ratio through the period.
- Total Debt to Equity was estimated at 6.95x, same as 6.83x above the 6.51% in the 2020 first quarter, implying that Total Debt (Deposit inclusive) can replicate equity 6.95 times.
- Similarly, Equity Ratio was stable within the two periods compared, at 12.57% from 13.37% in the corresponding quarter.
- We have estimated a Beta value above the market Beta for Zenith Bank Plc shares. Take note that at 1.15 beta value, it is above the 1.11industry average.

**Profitability Ratios**

- Pre-Tax Margin stood at 38.79% a growth of 10.07% from the last estimate of 35.24% at the end of 2020 first quarter.
- Interest Expense for the period is same as 11.45% of the Estimated Gross Earnings figure; a reduced position when compared to the previously estimated 19.68%.
- Returns Achieved on Average Equity used through the period was estimated at 4.86%, which is below the 5.30% return achieved in 2020.
- See below table for detailed profitability ratios and comparison:

**Efficiency Ratios**

- Operating Expenses is estimated at 39.92% of the Gross Earnings Value estimated for the period, an improvement from the 34.97% estimated from its 2020 financial statistics.
- Similarly, Gross Earnings was estimated at 1.81% of Total Assets, which is a 22.59% 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 59.96% from the 80.42% achieved in 2020 first quarter.

**Investment/Valuation Ratios**

- Profit on each unit of Zenith Bank at the end of the quarter was estimated at N1.69, as against the previously estimated N1.61
- Total Comprehensive Income per unit is estimated at N1.88, versus N1.99 in the comparable period.
- Price to Earnings Ratio adjusted for three months stood at 3.29x, as against 2.28x in 2020.
- The said earnings per share is same as 7.60% of the current market price of Zenith Bank Plc shares on the exchange when the result was released; this is a lower yield when compared to the previous first quarter yield.
- The current Book Value of Zenith Bank is N34.78, a 14.57% improvement from the N30.35 estimated last year.
- Confirming a seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity.

**Valuation**

As noted in our intro above, we fairly adjusted our fair value for each unit of Zenith Bank Plc shares to **N39.74 **each. Considering the distance between the current market price of the equity on the exchange and our achieved fair value, we have rated it a **Buy**.

**Five Year Financial History**