Zenith Bank Plc; Mildly Grows Financial Indices over Comparable Period

Coy: ZENITH BANK PLC (ZENITHBANK)

Rating: Buy

Current Market Price: N21.35

NPL RATIIO: 4.98%

Year High: N26.85

Year Low: N 20.00

Fair Value: N40.89

By: Jeariogbe Tunde Segun (Equity Analyst)

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Key Financial Ratios

This report observed the financial performance of Zenith Bank Plc for the first three months of 2019 (1^st Quarter 2019), and compare same with released financials for similar period in 2018 to establish growth/declines.
Non Performing loan ratio as at the end of the full year financial performance of 2018 is 4.98% as against the 4.70% posted in its full year financial performance for 2017.

Company Figures

Gross Earnings reported for the period stemmed slightly below the comparable year as its stood at N158.11 billion as against the N169.19 billion posted in the similar period of 2018
Interest Income grew marginally by 4.94% to stand at N122.48 billion compared to N116.71 billion in Q1-2018
Positively, Interest Expense stood at 22.21% below similar period in 2018. At the end of the quarter, N36.34 billion was reported as Interest Expense against N46.72 billion
Profit before Tax builds by 6.10% to stand at N57.29 billion against N54.00 billion achieved at the end of the first three months of 2018
Similarly, Profit for the Period stood at N50.23 billion, this is 6.70% above the N47.07 billion reported in 2018 first quarter
Nevertheless, due to foreign currency translation loss, Total Comprehensive Income for the period stood at 15.87% below that of 2018. Please note that the amount reported is N43.63 billion against N51.86 billion last year

Retained Earnings equally improved by 8.12% to stand at N290.41 billion against N268.59 billion last year
Total Assets estimate at the end of the quarter stood at N5.879 trillion, this is 3.58% value improvement against the N5.675 trillion Assets worth of 2018 first quarter
Total Liabilities followed similar trend as it improved by3.19% to stand at N5.098 trillion compared to N4.940 posted in similar period of 2018
Total Deposit also improved marginally as it only grew by 5.16% to stand at N3.571 trillion against N3.396 trillion in 2018
Loans and Advances improved by marginal 2.01% at N1.792 trillion against N1.757 trillion
Net Assets is currently estimated at N780.88 billion as against N735.24 billion in 2018

Volatility Ratios

Estimated beta value for Zenith Bank shares stood below the industrial average, and fairly above the market beta (unity). This signifies its liquidity and patronage by the investing public
Although almost irrelevant since we analyze a financial institution whose major business is to collect deposit (usually reported under liability) we estimated Debt to Equity to be 6.53 times bigger than the Equity value, this is slightly above the industrial average of 6.09 times.

Profitability Ratios

Interest Expense to Gross Earnings is presently estimated at 22.99% this is 16.76%% lower than the 27.61% estimated in 2018
PBT margin stood at 36.24% as against 31.92% last year, this is 13.53% improvement
Similarly, Profit margin looks up against last year. We have estimated 31.77% margin from Gross Earnings as against the previous estimate of 27.83%
Return on Average Equity is now 6.43% compared to the 6.40% returns achieved in 2018
Return on Average Assets only differs marginally by 3.01%, moving from 0.85% to 0.83%

Efficiency Ratio

Gross Earnings to Total Assets is estimated at 2.69% this is 9.78% lower than the estimate in 2018
Similarly, Gross Earnings to Equity is now 20.25% as against the 23.01% estimated from 2018
Financial Leverage is 7.53x as against 7.72x, this is an estimate of the number of times the total assets replicates the equity, in other words the ratio got better
It was also established that 50.18% of the Total Deposit was given out as Loan and Advances during the period under estimate this is 3.00% lower than the 51.73% given out in 2018
Meanwhile, Loan and Advances is same as 30.49% of the Total Assets this is 1.52% lower than the 30.96% last year. This shows a controlled/reduced risk compared to 2018

Investment Ratios

Just as in the company report above, since shares outstanding remained constant during the two periods under consideration, the estimated amount earned per units of Zenith Bank shares is N1.16, this is 6.70% above the N1.50 earned at the end of 2018 first quarter
Meanwhile, at N1.39 Total Comprehensive Income is 15.87% below the estimated N1.65 in 2018 first quarter
The said earnings is a yield of 7.66% of the current market price at released, this is 37.84% better than the 5.55% yield achieved in 2018
P/E-Ratio stemmed down to 3.27x as against 4.50x in 2018
Price to Book Value revealed an under priced status at 0.84x compared to the overpriced position estimated in the comparable period of 2018
Book Value per share estimated further confirmed that as at the time the result was made available to the investing public, Zenith Bank share price is selling below its book value. Please see the below table to establish this fact

Valuation

Our attempt to place a fair value on Zenith Bank took us through several valuation methods after which we settled for the constant perpetual dividend growth rate. We do not expect galloping growth in dividend since this has experienced appreciable growth in few years prior. To arrive at this value, we estimated five years dividend growth rate at 11.03%, and we make use of the average. On this strength, we have placed a fair value of N40.89 on each units of Zenith Bank’s share.