Zenith Bank plc on Monday released its first-quarter (Q1) to March 31, 2016 results. Though, the Q1’16 results indicates decline in gross earnings, profit before tax, and profit after tax, market watchers believe that the bank’s Q1 numbers still portend a decent start to the year and gives some weight to analysts full year earnings guidance.
Like other listed corporates, the decline in Zenith Bank’s earnings for the Q1’16 period was highly expected given the headwinds facing the Nigerian economy and the rising spate of impairment charge in the banking industry which continues to threaten banks’ profits.
The Q1 results
The Q1’16 result released at the Nigerian Stock Exchange (NSE) shows that Gross Earnings declined to N99.435billion, down by 12.3percent when compared to N113.32billion in the corresponding period of 2015.
Also, Zenith Bank reported 3 percent decline in Q1’16 Profit Before Tax of N32.121billion from N33.128billion in Q1’15. Profit After Tax declined to N26.573billion, down by 4percent when compared to Q1’15 level of N27.680billion. Loan loss expenses rose by 23.3 percent to N2.577billion from N2.090billion in Q1’15.
Loans and advances declined by 3.1 percent to N1.928trillion, down by 3.1percent when compared to N1.989trillion in Q1’15. Deposits rose marginally by 0.2percent to N2.563trillion from N2.557trillion. Cost to Income Ratio (CIR) was down to 56.4percent from 61.8percent, down by 5.4percent.
Zenith Bank reported Net Interest Income (NII) of 58.157billion in Q1’16 from N42.631billion recorded in Q1’15. Basic Earnings per share attributable to equity holders of Zenith Bank plc declined to 84kobo from 88kobo.
Share price movement
The share price of Zenith Bank plc rose by 2.3 percent or 0.26 percent on Tuesday to N11.56. The share price has witnessed a 52-week high of N18.85 and 52-week low of N8.83. Listed on the Premium Board, Zenith Bank plc has a market capitalisation of about N362.629billion and shares outstanding of 31,396,493,786 units.
Analysts view
Analysts at Capital Bancorp plc told investors that the decline in Zenith Bank’s earnings for the first-quarter (Q1) period was highly anticipated “given the headwinds facing the Nigerian economy and the rising spate of impairment charge in the industry which continues to threaten banks’ profits.”
“We however reiterate our BUY recommendation on the company stocks as we consider the shares to still be trading at a discount to its fair value. We expect the company to post a decent FY’16F result and for its dividend payment to continue,” analysts at Capital Bancorp plc stated.
Going forward, the analysts at Capital Bancorp plc do not anticipate a significant turnaround of things as current headwinds which continue to suppress earnings remain visible.
“We therefore project that earnings for the period will remain slightly depressed, though we expect the company to manage its interest expense, impairment charge, personnel and operating expense if it is to keep profit margins at higher or similar levels to the previous year”, they further said.
Also commenting on Zenith Bank first-quarter result, Olalekan Olabode team of analysts at Vetiva Capital Management Limited said, “We have updated our model for the Q1’16 earnings and revised our forecast accordingly to reflect the positive surprise.”
“Amidst the tough operating environment and in line with the general market trend, we expect the top line pressure observed in Q1’16 to persist all through FY’16. Although we forecast 6% y/y decline in Gross Earnings for FY’16, our PAT forecast is a mild 1% y/y decline supported by improved funding cost and a moderation in CoR.
“Also, we cut our loan growth forecast down to 6% y/y (Previous: 8%), 150basis points (bps) better than our coverage banks’ average. Zenith Bank remains one of our preferred names in FY’16 due to its top asset quality and efficient operating model – with our FY’16 CIR forecast of 58% vs. coverage banks’ average of 63%. Overall, we revise our TP to N27.46”, Vetiva analysts added.
“What we believe will set banks apart in terms of performance is asset quality, given the strain on the economy. We also expect the inflationary environment to benefit larger well-run tier 1 banks better as the tightening cycle should give support to their net interest margins,” said Olubunmi Asaolu team of analysts at FBNQuest in their first reaction to Zenith Bank Q1’16 results.
“We expect this to compensate for additional strain in their loan book (asset quality), in contrast to what we expect the tier 2 banks to experience. As at the end of last week, Zenith shares had shed -18.5% since the start of the year versus the ASI’s -13.7%. We believe the underperformance will be reversed as the strength/resilience in Zenith’s results emerges through the year. We rate the shares Outperform,” the analysts added.
Iheanyi Nwachukwu
