Zenith Bank published its Full year 2019 audited financials for the period ended 31st December 2019, recording a 5.06% y/y increase in Gross Earnings from N630.34Billion in FY 2018 to N662.25Billion in FY 2019, largely driven by the rise in Non-Interest Income by 28.98% from N179.96Billion to N232.12Billion in FY 2019.
Interest Income declined by 5.57% from N440.05Billion to N415.56Billion in FY 2019 as a result of a 14.72% reduction in interest from loans and advances granted, coupled with a decline in interest on treasury bills paper by 19.32% as they plunged to N232.94 Billion and N81.10 Billion respectively.
The drop in interest income from Treasury bills paper is associated with the lower yields on government securities in the period, although, the bank’s investment in Treasury paper dropped marginally by 1%. Furthermore, the advancement in the bank’s loan book couldn’t result in a rise in interest on loans and advances as the bank aimed more on increasing its asset quality and meeting its required LDR. On the back of Interest expense which advanced by 2.82% from N144.45Billion to N148.53Billion mainly driven by the rise in interest paid on savings and time deposits.
The expansion in Non-interest income by 28.98% to N232.12Billion in FY 2019 was largely driven by Fees and commission from fees from E-banking services 108.16%, Credit-related fees 13.30% and Foreign withdrawal charges 33.26% which increased by 22.36% from N81.81Billion in FY 2018 to N100.10Billion. Likewise, we noted Trading gains (T-Bills trading 21%, Bond trading 334.9%) growing by 46.88% from N80.20Billion to N117.79Billion, while other operating income declining by 20.79% from N17.94Billion to N14.21Billion in FY 2019 due to a drop in foreign exchange gains.
Profit before tax (PBT) stood at N243.29Billion showing an increase of 5.01% from N231.68Billion recorded in FY 2018. Consequently, Profit after tax in FY 2019 spiked to N208.84Billion growing by 7.97% from 193.42Billion at the end of the corresponding period of 2018.
Asset Quality; Net Loans and advances expanded by 26.46% to N2.31Trillion from N1.82Trillion in FY 2018. Loan to deposit ratio stood at 54.09% when compared with FY 2018 which settled at 49.40%. The total deposit also rose by 15.47% from N3.69Trillion in FY 2018 to N4.26Trillion at the end of FY 2019. Although the bank performance is marginally strong for the period, it is still unable to meet the 65% requirement for the Loan to Deposit Ratio fixed by the regulatory body.
The Bank declared a final dividend per share of N2.50K (interim of 30k), representing a dividend yield of 12.59%. Our blended target price is N36.71. Along with Our forward P/E x ratio of 3.33x. We recommend BUY at the current market price of N19.85, as the stock trade’s at a discount of 84.93% to our estimated value.
Greenwich Research
