Amidst concerns about the impact of the monetary and fiscal changes on banks’ earnings, Zenith Bank appears primed for better performance as investors and market pundits repose confidence in the bank’s resilient performance. Taofik Salako reports
Investors in Zenith Bank Plc have earned about N81.95 billion in new capital gains in six trading sessions at the stock market. The capital gains highlight investors and market pundits’ confidence in the banking stock as quoted companies begin to roll in earnings and dividend recommendation. Zenith Bank’s market capitalisation, which opened last week at N490.41 billion, closed on Monday at N572.36 billion, representing an increase of N81.945 billion. This implied average gain of 16.71 per cent over the six trading sessions. This was more than double of the average weekly return of 6.52 per cent recorded by the benchmark index for the stock market, the All Share Index (ASI), last week.
Zenith Bank is riding on the momentum of increasing positioning by investors ahead of the release of the full year audited report and accounts of the bank for the full year ended December 31, 2014. Already, key extracts of the nine-month interim report and accounts of the bank showed profit before tax of N87 billion and profit after tax of N71 billion. Total assets stood at N3.408 trillion and shareholders’ funds N523 billion. The third quarter report built on above-average performance in the previous quarters. Interim report and accounts for the six-month period ended June 30, 2014 showed that profit before tax rose by about seven per cent to N57.85 billion in first half 2014 as against N54.08 billion recorded in the corresponding period of last year. Profit after tax also rose to N47.45 billion as against N45.42 billion for the same period in 2013. Gross earnings rose by 7.8 per cent from N171.02 billion in 2013 to N184.43 billion in first half 2014. The six-month results also showed that within the period, Zenith, Nigeria’s biggest bank by Tier-1 capital grew its assets by 15.2 per cent from N2.78 trillion to N3.20 trillion. Also noticeable was the 7.43 per cent increase in shareholders’ funds, up from N458.31 billion as at the end of June last year to 492.38 billion.
The interim reports for 2014 further strengthened the performance outlook of Zenith Bank, which had increased cash dividend to about N54.94 billion for the 2013 business year as against N50.23 billion distributed for the 2012 business year. The breakdown of the dividend indicated that shareholders received a dividend per share of N1.75 as against N1.60 received in the previous year. The expectation of appreciable dividend, in spite of industry-wide headwinds, has been cited as one of the reasons for the share price uptrend.
Strong fundamentals
Audited report and accounts of Zenith Bank for the year ended December 31, 2013 had shown that gross earnings rose by 14 per cent while pre-tax profit increased by 8.0 per cent. However, profit after tax dropped by 5.0 per cent. Gross earnings closed 2013 at N351.47 billion as against N307.08 billion recorded in 2012. Interest income rose by almost 18 per cent from N221 billion to N260 billion, while net interest income rose by 21 per cent to N156.8 billion compared with N189.3 billion in 2012. Profit before tax stood at N110.6 billion in 2013 as against N102.1 billion in 2012. However, high operating expenses and tax payment led to a drop in profit after tax. The bank paid a tax of N15 billion, indicating a jump of 977 per cent from N1.419 billion in 2012. Consequently, profit after tax fell by five per cent from N100.68 billion to N95.32 billion. Balance sheet of the bank also appeared stronger as customers’ deposits rose by 18 per cent from N1.929 trillion to N2.277 trillion. Return on average equity stood at 19.6 per cent, while return on average asset was 3.3 per cent.
A medium-term analysis of the fundamentals of the banks showed a positive trajectory over the past five years. Gross earnings grew from N277 billion in 2009 to N244 billion in 2010, N307 billion in 2012 and N351 billion in 2013. Profit before tax rose from N35 billion, to N50 billion in 2010, N61 billion in 2011, N101 billion in 2012 and N111 billion in 2013. Also, the bank has grown shareholders’ returns consecutively over the years. Gross dividend more than doubled from N11 billion in 2009 to N26 billion in2010 and subsequently rose to N29 billion in 2011, N50 billion in 2012 and N54 billion in 2013.
A vote of confidence
Exotix Partners LLP, a global finance and investment firm with offices in major global financial centres and significant imprints in Africa, said Zenith Bank has potential return of 72.9 per cent over a 12-month period. Exotix coordinates its global operations through five major offices in London, New York, Lagos, Dubai and Nairobi. Exotix stated that Zenith Bank’s share price could reach N28.6 per share with a possible dividend yield of 6.6 per cent, within the highest bracket in the banking industry. While analysts at Exotix said the devaluation of Naira would put pressure on banks’ earnings, they noted that Zenith Bank is one of the two banks that are favoured to weather the headwinds. According to analysts, the devaluation could lead to lower foreign exchange trading volumes and increasing cost of risk, which could negatively impact the earnings of banks.
However, the devaluation also holds possible silver linings for Zenith Bank. Analysts said devaluation could lead to higher inflation, which could subsequently push up interest rates on government securities and thus lead to higher net interest margins (NIMs) for banks with high liquidity ratios and strong deposit-taking franchises such as Zenith Bank. According to analysts, given its strong deposit-takingfranchise, Zenith Bank could offset any possible decline in forex revenue by increasing margins. Exotix also stated that the bank’s strong risk management track record should enable it to maintain a below average cost of risk and thus earn higher than average profitability. So, the devaluation will have almost no negative impact on the bank.
In the beginning
With network that includes subsidiaries in the United Kingdom, Ghana, The Gambia, Sierra Leone and Liberia, Zenith Bank currently has a shareholder base of about one million shareholders. Aside listing $850 million worth of its shares on the London Stock Exchange (LSE), via a technical Global Depository Receipt (GDR) programme, the Bank, in April 2014, recorded a massive over-subscription of about 200 per cent in her $500m Eurobond issue under a $1bn Global Medium Term Note (GMTN) programme announced on 1 April 2014. The bank was also in June 2014, declared the Most Customer Focused Bank 2014 by KPMG; where the bank won in all three categories namely: Corporate, Retail and SME.
Zenith was also rated the Biggest Bank in Nigeria by tier-1 capital by the FT of London and Best Nigerian Bank in Corporate Governance by the World Finance. It should be noted that The Banker Magazine, a publication of Financial Times of London, has also awarded its ‘Bank of the Year’ award to Zenith Bank. The Banker stated that Zenith Bank was selected based on the overall performance of the institution and the opinion of leading financial analysts from the world’s financial markets. According to the magazine, nominees for the award were judged by their ability to deliver shareholder returns and gain strategic advantage in terms of market visibility and positioning.
Established in May 1990, Zenith Bank began operations in July of the same year as a commercial bank. The bank became a public limited company on June 17, 2004 and was listed on the Nigerian Stock Exchange (NSE) on October 21, 2004 following a highly successful Initial Public Offering (IPO). The bank has a shareholder base of about one million and is Nigeria’s biggest bank by tier-1 capital. In 2013, Zenith Bank listed $850 million worth of its shares on the London Stock Exchange (LSE).
Zenith Bank Plc blazed the trail in digital banking in Nigeria, scoring several firsts in the deployment of information and communication technology (ICT) infrastructure to create innovative products that meet the needs of its teeming customers. The bank is verifiably a leader in the deployment of various channels of banking technology, and the Zenith brand has become synonymous with the deployment of state-of-the-art technologies in banking.
Zenith Bank Plc is one of leading banks in Nigeria and a pioneer of many innovations in service delivery. Zenith Bank has been known as leader in financial solutions in most facets of banking and catering to the banking needs of its customers in the public and private sectors. Over the years, using technology as one of its major advantages, Zenith Bank has successfully served customers and delivered impressive returns to shareholders. Having established itself as a leader in corporate and investment banking, Zenith Bank appears to be preparing to play deeper in the retail end of the banking industry, using its high technology and innovative products.
Market analysts believe this move will not only enhance Zenith Bank’s corporate profile, it will also enable more customers in the retail category to have access to efficient service delivery and boost the financial inclusion policy of the Federal Government.
Looking forward
Zenith Bank has benefitted from stable board and management. With the assumption of the chairmanship of the bank by its founding managing director, Mr Jim Ovia and the appointment of Mr. Peter Amangbo, who has spent more than two decades with the bank, as managing director, Zenith Bank has further strengthened its managerial edge. Amangbo experience with Zenith Bank which cuts across corporate finance and investment banking, business development, credit and marketing, financial control, strategic planning and operations. He was a pioneer non executive director of Zenith Bank UK.
According to the management of the bank, the overall vision is to build the Zenith Bank brand into a reputable international financial institution recognised for innovation, superior performance while creating premium value for all stakeholders. The strategic objectives thus include the continuous improvement of its capacity to meet the customer’s increasing and dynamic banking needs as well as sustain high quality growth in a volatile business environment through: continuous investment in branch network expansion and thus bringing quality banking services closer to our teeming existing and potential customers; continuous investment and deployment of up to date and state of the art technology; continuous employment of the best people available and motivating them; continuous investment in training and re-training of our personnel; maintaining and reinforcing our core customer service delivery charter.
“At Zenith Bank, we do not just see our organisation as an entity solely concerned with wealth creation for the shareholders. Our strategic alliance with the various stakeholders, government and non-governmental agencies centre round institutional building and capacity development in the following areas: Strong commitment to the support of Small and Medium Enterprises as well as development of indigenous industries. Entrepreneurship incubation for the youths through sustained funding of institutions responsible for entrepreneurial development. Development of the real sectors of the economy through provision of funds to industry players at competitive costs,” the bank stated.
The bank envisions that as Nigeria’s information technology infrastructure improves, its leading edge in information technology will keep it well positioned in the global banking community to sustain its offering of exceptional e-banking services. This will continue to be complemented by the bank’s risk management system that creates a blend that not only grows customers’ businesses but also strengthens them.
