Zenith Bank Profit Tapered, Still Best in Class – Vetiva
After a reported slide in its first quarter (Q1) gross earnings, analysts are expecting Zenith Bank Plc.’s profit expectation for the financial year 2021 to taper, saying despite that, the leading financial service boutique remains best in class in the banking sector.
According to Vetiva Capita equity report, in its Q1-2021, Zenith posted a 6% year on year dip in gross earnings to ₦157.3 billion from N166.814 billion in the comparable period.
Analysts attributed the decline to 12% year on year drop in the bank’s interest income to ₦101.2 billion, which was caused by declines in income from T-Bills and interbank placements.
However, non-interest revenue climbed 7% higher year on year, thanks to a 71% jump in fees and commissions to ₦36.4 billion, which offset declines in trading income and FX revaluation gains of 36% and 52% respectively.
The bank actually reported a 2% year on year improvement in net interest income, which analysts attributed to a 45% drop in interest expenses to ₦18.0 billion.
Vetiva Capital said this improved the bank’s net interest margin to 6.3% from 5.2% in financial year 2020.
Furthermore, the bank recorded a 2% year on year decline in impairment charges, despite loan loss provisions remaining flat y/y at ₦3.5 billion.
On the other hand, the analysis of the bank figure showed that its operating expenses grew 4% year on year to ₦74.4 billion as with other banks in Vetiva Capita coverage, driven by an increase in AMCON charges.
Zenith Bank reported that AMCON Charges increased by ₦3.5 billion to ₦18.9 billion in the period, ultimately led the bank to report a pretax figure of ₦61.0 billion.
For the first quarter of the year, Zenith Bank profit for the period settled at ₦53.1 billion, representing a 5% year on year jump above the figure reported in the comparable period in 2020.
Solid NIMs driven by improved CASA mix
According to Vetiva Capital analysts, Zenith Bank recorded a solid net interest margin in the first quarter which analysts believe was supported by low funding cost.
It said Zenith’s impressive 2% growth in net interest income came about due to a 45% decline in interest expense, which was driven by a 66% decline in interest paid on time deposits.
This occurred in addition to a 23% decline in interest paid on borrowed funds.
Analysts at Vetiva capital said this came about due to a shift in the bank’s current account, savings account (CASA) mix, as demand on current account deposits increased by 65%, Savings by 58%, whilst time deposits fell 30% year on year.
“Looking forward, we expect the bank to continue attracting lower costing funds, maintaining its positive net interest growth despite weaker interest income”, Vetiva Capital projected.
Analysts at the firm however lower interest income projection to ₦400.5 billion from ₦460.9 billion and the firm’s interest expense forecast to ₦94.7 billion from ₦127.3 billion, resulting to net interest income line of ₦305.7 billion as against previous estimate of ₦332.9 billion.
Vetiva slashed the bank gross earnings expectation for 2021 to N690.6 billion from N750.3 billion while the firm expects operating expenses to drop.
From N300.1 billion, analysts slashed operating expenses for the financial year 2021 to N290 billion amidst rising inflation rate in Nigeria.
This resulted to lower profit after tax expectation at N240.2 billion from N255.6 billion in the comparable period in 2020. At this profit level, the bank is expected to deliver a return on average equity of 20.2%.
“The new profit projection gives us an expected earnings per share of N7.65 and dividend per share of N3.10 as against N3.30 previously projected”, Vetiva Capital stated in the report.
On the back of its assessment, analysts set 12-months target price on Zenith stock at N36.04 from N36.39, noting that stock has 10% of its opening value year to date.
Vetiva Downgrades UBA Plc.’s Estimates over Core Earnings
Zenith Bank Profit Tapered, Still Best in Class – Vetiva
