Zenith bank had just released its full-year result for 2018 with profit after tax coming out better than the previous year’s figure (2017).
The bank also increased its final earnings (PAT) by 11% to N193b, from N173b while gross earnings fell by 15% to N630b, from N745b.
While this isn’t a bad result, I believe a deeper look at specific figures will help us know where the bank is and possibly, future direction.
Let us look at some of the key figures and performance metrics:
- Interest and similar income fell from N474b to N440b, 7.1% drop. No thanks to a drop in interest on loan and advances to customers
- Interest expenses also decline significantly by 33%, from N216b to N144b largely driven by a downward review of the bank’s fixed deposit interest offers to customers.
- The lower interest expenses boosted interest income to N295b in 2018 from N257b while overall net interest after impairment went up to N277b against N157b reported in 2017.
- Other income from fees and trading fell while OPEX increased.
- Earnings per share, a measure of profit attributable to shareholders increased by 11%, from N5.53 to N6.15.
- Total asset increased to N5.9tr (from NN5.5tr), 7% growth. Of the cumulative figure, Zenith increased its exposure to CBN Treasury to the tune of N1tr against N936b in 2017, investment securities stood at N563b against N330b in 2017 while loan portfolio was cut down to N1.8tr against N2.1tr.
- The bank also enjoyed increased customer confidence as reflected in 5% growth in customer’s deposit to N3.69 tr (compared to N3.4tr recorded in the previous year).
- The efficiency ratio, a measure of bank’s efficiency, as at the end of 2018 was 35.7% against 29% recorded in 2017 while Return on equity, a measure of how the bank utilized shareholders fund, increased to 23% from 21%.
Zenith bank profit was largely boosted by reduction in interest on fixed deposit, otherwise, the bank’s bottom line would have been lower than it’s 2017 figure. The bank enjoys a brand advantage from its loyal customers.
- The bank is close to becoming an investment-driven bank. Based on its latest result, the amount invested in CBN Treasury bill is N800b far from away from N1.8 tr loan portfolio. Investors are advised to watch yield directions as it may become a key driver of the bank’s future profit.
- The bank is under pressure to create a diversified loan portfolio. Although the bank’s CEO is looking to diversify its loan offering to SMEs via retail banking.
- Zenith still ranks among the profitable and efficient banks in Nigeria.
What is the fair value of Zenith bank’s stock?
Based on its 2018 EPS of 6.15 and a risk-adjusted discount of 19%, Zenith bank should trade close to N30 – N32. The bank also declared a full year dividend of N2.8 which, at a market price of N25, translates to a juicy dividend yield of 11.2%.
As one of the highest yielding stocks in the banking sector, a bullish run is highly expected before the closing date (8th March 2019).
Disclaimer: I own Zenith bank’s stock but please do your due diligence properly.