Marginal Growth, Low LDR, Better NPL, Zenith Bank Excites Investors with N2.50 Final Cash Dividend

Coy: ZENITH BANK PLC. (ZENITHBANK)
Rating: Buy
Current Market Price: N19.85
NPL RATIO (Q4-2019):4.30% (Q4-2018:4.98%)

Loan to Deposit Ratio: 54.09%
Year High: N23.00
Year Low: N18.60
Fair Value: N37.06
By: Jeariogbe Tunde Segun (Equity Analyst)

Introduction

• In this report we have observed the audited performance indices of Zenith Bank for the year ended 31^st December, 2019, compare same with numbers released in the similar business session of 2018 to establish growth, projections and valuation accordingly
• As shown above the bank was able to reduced its Non-Performance Loan to 4.30% from 4.98% at the end of 2018 financial year
• Nevertheless, it only achieved 54.09% Loan to Deposit ratio, this is below the regulator’s standard of 65%. Implying that it will be penalised for the shortfall
• According to the document released through the Nigerian Stock Exchange platform, the management of Zenith Bank had announced a Cash Dividend of N2.50/share in addition to the previously paid Interim dividend of N0.30. in other words, total take home par unit shares in 2019 is N2.80/share
• Please understand that the total dividend paid in 2018 financial year is same as N2.80
• The closure and qualification date for the said dividend are 10^th & 9^th March, 2020 while the Payment Date is booked for 16^th March, 2020 same date as the Annual General Meeting at Sheu Musa Yar’Adua Centre, 1 Memorial Drive (Opposite Sheraton Hotel & towers), Abuja.
• Please note that Zenith Bank result in accurate in both released period (2018 released date was 19^th February, 2019) and Restatement figures. That is, all restated figures for the year end 2018 were exactly as stated in the original result.
• See below for further analysis

Company figures

• Gross Earnings improved slightly by 5.06% to stand at N662.25 billion against the N630.34 billion posted at the end of 2018 financial year
• Interest Income on the other hand dropped by marginal 5.57% to stand at N415.56 billion against N440.05 billion in the corresponding year
• Interest Expenses grew slightly by 2.82% to stand at N148.53 billion versus N144.45 billion in 2018
• Net Interest Income stood at N267.03 billion, same as 9.66% below the N295.59 billion in 2018 financial year.
• Operating Expenses was stable through the two financial year compares, as the stated figure only differs by 0.42% to stand at N207.31 billion versus N206.45 billion in 2018
• Profit before Tax was estimated at N243.29 billion, 5.01% up from the previous N231.68 billion stated in its 2018 financials
• Tax rate maintained stability through the two financial years compared. It only adjusted up by marginal 0.71%
• Having provided for Tax Expenses, the management of Zenith Bank achieved N208.84 billion as Profit for the year, this is 7.49% improvement over the N193.42 billion earned at the end of 2018 business session

• Total Assets value grew by 6.57% to stand at N6.34 trillion up from the previous value of N5.95 trillion in 2018
• Total Liability equally improved marginally by 5.16% to stand at N5.40 trillion against N5.13 trillion in 2018 financial year
• Net Assets grew by 15.46% to stand at N941.88 billion as against N815.75 billion stated in its 2018 financial documents
• Retained Earnings grew to N412.94 billion, same as 28.15% above the N322.23 billion stated in its last audited result
• Total Customers’ Deposits received through 2019 was valued at N4.26 trillion, this is 15.50% above the N3.69 trillion deposit in 2018
• Total Loans and Advances given through 2019 business year is estimated at N2.30 trillion, this is 26.46% above the N1.82 trillion in 2018

Financial Strength/Solvency Ratios

• Debt Ratio was stable through the two compared periods at 0.85x, signifying a controlled assets ratio through the period
• Total Debt to Equity was estimated at 5.74x, 8.93% below the 6.30x in 2018 full year numbers, this implied that Total Debt (Deposit inclusive) can replicate Equity 6.30 times
• We have currently estimated a Beta value above the market Beta for Zenith Bank Plc shares. Please note that at 1.05 beta value, it’s still slightly below the industrial average of 1.06.

Profitability Ratios

• Pre-Tax Margin stood at 36.74% a marginal growth of 0.05% from the last estimate of 36.76% at the end of 2018 business year
• Interest Expense figure posted for the period is same as 22.43% of the Estimated Gross Earnings figure; this is a reduced position against the previously estimated 22.92%
• Return Achieved on Average Equity used through the period was outstanding at the estimated at 22.17% this is below the 23.71% return achieved in 2018
• See below table for detailed profitability ratios and comparison

Efficiency Ratios

• Operating Expenses is estimated to be 31.30% of the Gross Earnings Value estimated for the period, this is a marginal drop from the 32.75% estimated from 2018 financial statistics. We are of the opinion that the ratio can drop more with management strict control
• Similarly, Gross Earnings was estimated to be 10.43% of Total Assets, this is 1.41% drop in efficiency when compared to estimate from the corresponding year
• Total Loan to Deposit Ratio achieved at the end of the year stood at 54.09% up from the 49.40% achieved in 2018. Please note that this is below the CBN mandated 65% as noted above

Investment/Valuation Ratios

• Profit made on each units of Zenith Bank shares at the end of the year had been estimated at N6.65 as against the previously estimated N6.16
• Total Comprehensive Income per unit shares is estimated for N6.84
• Price to Earnings Ratio for the year stood at 2.98x as against 4.11x in 2018
• The said earnings per share is same as 33.51% of the current market price of Zenith Bank Plc shares on the floor of the exchange when the result was released this is a better yield when compared to the previous year’s yield
• The current Book Value of Zenith Bank is N30.00, a 15.46% improvement from the N25.98 estimated last year
• Confirming a seemingly under-priced position is the Price to Book Value ratio that stood clearly below unity

Valuation

Factoring in marginal improvements in Zenith Banks numbers, our blend of valuation tools priced each unit of Zenith Bank’s shares at a fair price of N37.06. Thus, considering the grossly under-priced position on the floor of the exchange, we Rated the Shares a BUY.