Investment analysts applaud Zenith Bank’s 3Q performance

• Reiterate ‘buy’ recommendation
• Review forward earnings estimate

The nine-month financial position of Zenith Bank plc released on the Nigerian Stock Exchange on Monday in which the company reported a significant improvement in performance for the period, has been receiving applause by investment analysts.

Analysts at Capital Bancorp review the performance thus:

Gross earnings reported a significant boost as it grew by 12.91 per cent to ₦380.35 billion (vs. ₦336.85 billion in 9M’15), while as anticipated in our half year earnings review that the bank will significantly benefit from the current high interest rate regime didn’t take long to materialise having reported an interest income growth of 11.27 per cent to ₦285.67 billion (vs. ₦256.73 billion in 9M’15).

Trading income for the period grew marginally by 3.12 per cent to ₦16.41 billion (vs. ₦15.91 billion in 9M’15) while fee and commission income took a hit as it dropped by 15.08 per cent to ₦46.28 billion (vs. ₦54.50 billion in 9M’15) largely as a result of the drop in some line items such as commission in turnover which dropped by 94.49 per cent, credit related fees which dropped by 17.53 per cent and corporate finance fees which dropped by 27.68 per cent.

After reviewing its current earnings we remain bullish on the future outlook of the company and update our target price on the company from the initial ₦17.15 to ₦20.46 and reiterate our BUY recommendation on the company shares.

Impairment charge rises on increased provisioning; with the company reporting a significant increase in impairment charge of 124.76 per cent to ₦21.85 billion (vs. ₦9.72 billion in 9M’15), we do not expect impairment to erode the banks profit for FY’16E having already provided significantly for 9M’16 even though the banks loans and advances to customers reduced by 7.44 per cent to ₦1.84 trillion (vs. ₦1.98 trillion in 9M’15).

During the period, impairment charge for overdrafts grew to ₦9.39 billion (vs. ₦6.12 billion), while impairment charge for term loans grew to ₦10.52 billion (vs. ₦3.607 billion in 9M’15). Provisioning for on-lending facilities and advances under finance lease stood at ₦1.8 billion and ₦100 million respectively against ₦0.00 provisioning for on-lending facilities in 9M’15 and a ₦10 million write back on advances and finance lease in 9M’15.

Expenses for the period also grew in totality, as personnel expense grew by 5.00 per cent to ₦54.91 billion (vs. ₦52.29 billion in 9M’15) while operating expense grew by 15.71 per cent to ₦78.29 billion (vs. 67.66 billion in 9M’15).

Profit after tax boasted by FX revaluation gains; we are impressed with the Banks ability to grow PBT and PAT for 9M’16, having reported a 15.73 per cent drop in PAT as at H1’16. PAT for the period stood at ₦100.07 billion (vs. ₦83.08 billion in 9M’15) representing an increase of 20.44 per cent. though interest income for the period supported this rise, other income for the company remained a major boast to the Banks profits having reported a rise in other income of 229.68 per cent to ₦31.98 billion (vs. ₦9.70 billion in 9M’15).

This rise was largely as a result of FX revaluation gains reported under other income segment which stood at ₦31.05 billion (vs. ₦7.32 billion in 9M’15) representing a rise of 323.47 per cent. PBT and PAT margin for the period stood at 31.88 per cent and 26.31 per cent in 9M’16 respectively (vs. 30.89 per cent and 24.67 per cent reported in 9M’15).

Going forward we review our earnings estimate for FY’16 upward to reflect current earnings as the bank is well positioned to report another PAT of over ₦100 billion for FY’16E.