Zenith Bank: Banking

THE COMPANY: Zenith Bank is one of Nigeria’s largest banks by Tier 1 capital and shareholder funding, offering diverse operations in the financial sector. Beyond Nigeria, the bank also has subsidiaries and branches in The Gambia, Ghana, Sierra Leone, South Africa and the UK. In 2012 the bank was named the “Best Bank in Corporate Governance” by World Finance and one of the “20 Global Super Brands” by FTSE Global Markets.

The bank currently has 31.4bn shares outstanding, translating to a market capitalisation of N664.67bn ($4.19bn). In 2013 Zenith Bank listed $850m worth of its shares on the London Stock Exchange (LSE) at a price of $6.80 per share. The bank admitted a total of 125m global depository receipts (GDRs) which will trade on the LSE’s International Order Book, the world’s largest and most liquid GDR market. Each Zenith Bank GDR represents 50 ordinary shares. The bank continues to fulfil its financial obligations through a network of 340 local branches and 677 automated teller machines.

2013 RESULTS: Zenith Bank posted a stellar result in Q1 2013, which showed strong gains across key metrics. Gross earnings rose 20% to N86.98bn ($547.97m) compared to Q1 2012 gross earnings of N72.35bn ($455.81m). The interest earned from the bank’s core operations increased by 24% to N65.53bn ($412.84m). Investment and other operating income, which declined by 85% to N1.06bn ($6.68m) in fiscal year (FY) 2012, surged by 2090% in Q1 2013 to N153m ($963,900) from N7m ($44,100) recorded in the same period in 2012.

Expenses rose across the board relative to Q1 2012 results, with interest expenses growing 37% to N19.92bn ($125.5m), bringing the net interest income to N45.61bn ($287.34m), an increase of 19% compared to the previous year. Loan loss expenses saw an increase of 27% to N1.54bn ($9.7m); tax expenses rose 44% to N5.47bn ($34.46m), as tax-free income from government securities eased; and operating expenses grew by some 14% to N33.92bn ($213.7m).

However, profit before tax climbed 25% to N28.88bn ($181.94m) from N23.01bn ($144.96m) in Q1 2012, while profit after tax mounted 22% to N23.41bn ($147.48m) relative to Q1 2012. Zenith Bank recorded the highest profit after tax in the Nigerian banking industry in FY2012, at N100.68bn ($634.28m), representing a 100% increase against the N48.7bn ($306.81m) from FY2011. The impressive performance in its profit was supported by the bank’s ability to reduce costs through in-house strategic filtering.

The balance sheet also showed strong growth based on improvements in key metrics in Q1 2013 relative to Q1 2012. Cash and cash equivalents rose 27% in the first quarter of 2013 to N1.25trn ($7.88bn); loan and advances appreciated by 21% to N1.1trn ($6.93bn); and the bank’s deposit base saw an increase of 19% to N1.99trn ($12.54bn). This is positive in terms of Zenith Bank’s ability to moderate its liquidity, as its loans-todeposit ratio averaged at 55.11%.

On the whole, net assets rose 22% to N486.23bn ($3.06bn). Relative to the year-end 2012 results, it is interesting to note that Zenith Bank grew its loan book more aggressively than its deposit base. More specifically, loans and advances rose 11.11% from year-end 2012, while the deposit base increased 3.11%.

We believe this more aggressive growth in the loan book could boost earnings going forward, as earnings growth from the loan book should outpace interest payments on deposits. The investment metrics also showed a positive trajectory as earnings per share rose 21.31% to N0.74 ($0.0047) compared to Q1 2012, while price to earnings stood at 28.57x. In Q1 2012, return on equity (ROE) was 5.02% and, if performance steadies at this rate, we can expect a year-end (annualised) ROE of 19%. Book value per share grew by 22% to N15.49 ($0.098), while price-to-book stood at 1.38x. The bank trades above its book value at N21.17 ($0.13).

DEVELOPMENT STRATEGY: In line with Zenith Bank’s step to improve liquidity in its stock through the GDR, it also used the opportunity to access a wide range of major institutional investors and fund managers. This significantly raised the bank’s international profile.