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Zenith Bank Q3 results: Analysts’ views remain positive

Zenith Bank Q3 results: Analysts’ views remain positive

Recently, Zenith Bank Plc released to the investing public its unaudited results for the nine months ( 9M) period ended September 30, 2019. Despite a challenging macro- economic environment, the Group recorded a significant growth across its top-tobottom line figures.

The unaudited account for the third-quarter (Q3) in review which was presented to the Nigerian Stock Exchange (NSE) showed Zenith Bank gross earnings increased by 4percent from N474.607 billion recorded in third-quarter (Q3) 2018 to N491.268 billion in Q3 2019.

Profit Before Tax (PBT) grew by 5percent from N167.307billion in Q3 2018 to a record N176.183 billion in Q3 2019. Also, profit after tax (PAT) rose by 5percent from N144.179 billion in Q3 2018 to N150.723 billion in Q3 2019. Non-interest Income (NII) expanded by 22percent from N128.7 billion in Q3 2018 to N156.8 billion in Q3’2019.

In this final quarter of the year, Zenith Bank hopes to sustain its competitiveness and share of market in the corporate segment and build upon its digital foundations to reinforce its retail banking initiatives.

“Our views on Zenith Bank remain positive, buoyed by efficient cost-tooperating revenue profile and stable margins. Although interest income is unlikely to improve by full year 2019, stronger NII performance, cheaper funding cost and stable CIR are expected to keep profitability attractive”, said research analysts at Lagos-based United Capital.

“Again, with return-on-equity (ROE) of 23.8percent, the ticker remains under- priced at N17. Accordingly, we maintain a “buy” rating on the ticker”, United Capital analysts added.

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Zenith Bank’s platforms and channels were the enablers of this growth, with fees from electronic products doubling to N35.3 billion from N17.6 billion in Q3 2018.

Zenith’s cost optimisation strategies and aggressive retail banking drive also yielded the desired effects as cost-to-income ratio declined from 51.2percent in Q3 2018 to 50.1percent in Q3 2019 with Earnings Per Share (EPS) growing by 5percent from N4.58 in Q3 2018 to N4.80 in Q3 2019.

Zenith Bank Plc is one of Nigeria’s largest lenders. The bank offers its clients wide range of corporate, investment, business and personal banking products and solutions across over 500 branches, predominantly in Nigeria, with subsidiaries in the UK, Ghana, Sierra Leone and Gambia, as well as representative offices in South Africa and China.

The group’s retail and corporate banking franchises continued its momentum with customers’ deposits growing by 7percent to N3.95 trillion from N3.69 trillion recorded as at December 2018, a reflection of increasing share of the industry’s deposits and customers’ confidence in the Zenith brand. These deposit acquisitions have directly contributed to Zenith Bank’s cost of funds improving from 3.3percent in Q3 2018 to 2.95percent as at Q3 2019.

According to Usoro Essien’s team of analysts at Vetiva Capital, Zenith Bank stock remains a “buy”. The “buy” rating refers to stocks that the analysts consider highly undervalued, but with strong fundamentals, and where potential return in excess of or equal to 15percent is expected to be realised between the current price and analysts’ target price. The analysts have set a target price (TP) of N32.77 for Zenith Bank shares.

“Cost optimisation drives PBT growth. We find Zenith Bank numbers very impressive, as the bank was able to grow loan book while preserving asset quality ( 9M’ 19 NPL ratio: 4.95percent H1’ 19: 5.30percent) despite a tough operating quarter. The bank’s shares have lost 26.6percent year-to-date (YTD) and are currently trading at a price-to-book (P/B) of 0.6x versus a Tier-i peer average of 0.7x”, Vetiva research analysts further stated.

Zenith Bank has continued to deploy capital to creating viable risk assets with gross loans and advances growing by 9percent from N2.02 trillion as at December 2018 to N2.2 trillion as at Q3 2019 across both the retail and corporate segments. The Group’s focus remains the search for bankable lending opportunities to ensure the attainment of the minimum regulatory loan-to-deposit ratio (LDR) of 65percent by December 31, 2019 without compromising its prudence.

Also, research analysts Coronation Merchant Bank said, “We have a price target of N27.5 per share for Zenith Bank and given the potential upside relative to current price of N17.15 per share, we maintain our buy rating”.

Zenith Bank’s robust risk management framework has ensured that non-performing loans (NPL) ratio declined from 4.98percent in December 2018 to 4.95percent in the current period. It’s commitment to maintaining a shock-proof balance sheet remains with liquidity and capital adequacy ratios at 63.8percent and 23.8percent respectively, both above regulatory thresholds.

Mobil Plc released its nine months ( 9M) 2019 results , reporting a 13percent yearon- year ( y/ y) growth in turnover to N141.5 billion over the nine-month period. However, 9M’ 19 after- tax profit declined 19percent y/y to N6.3 billion, dragged by the persisting lean margins in the downstream industry. Notably, gross margin fell to 8.1percent in 9M’19 from 10.2percent y/y in 9M’18.