Equities Analysts See 53% Upside in Zenith Bank

Equities Analysts See 53% Upside in Zenith Bank

Equities analysts at Apex Asset Limited have placed Zenith Bank shares on its buying bucket after a strong earnings beat in the first half of 2023, estimating that investment in lender could give as high as 53% above its market price.

On the heel of a better performance, the board of directors proposed an interim dividend of N0.50 per share compared with N0.30/s in June 2022. In the stock market, there were selloffs on Zenith Bank, and it plunged the lender’s share price downward.

Negative price movement in the bank’s share dragged the banking index lower by 3.24% and Zenith Bank lost 11.13% of its market valuation despite a surge in earnings –driven by weak sentiment in the local bourse.

The investment firm upgraded Zenith Bank’s target price to N50.55, an increase of 33.69% from N37.81 previously estimated. 

A review of Nigeria’s leading financial institution results showed that Zenith Bank’s gross Earnings increased more than double in the period, reaching ₦967.26 billion from ₦404.76 billion in 2022.

Ajose Adeogun’s headquartered financial institution saw its net fee and commission income drop by almost a third, from ₦64.45 billion in the first half of 2022 to ₦43.92 billion in this period.

Analysts attributed this mainly to the unification of foreign exchange rates, which led to significant revaluation gains. The cost of funding increased year-on-year, rising from 1.4% in H1’2022 to 2.6% in H1’2023.

This increase was primarily due to a spike in interest rates, resulting in higher interest expenses, which rose from ₦57 billion in H1’2022 to ₦153.6 billion in H1’2023, analysts said.  As a result, the net interest margin (NIM) contracted from 7.1% to 5.9% during the same period.

Apel equity research analysts said, on the downside, that a record increase in Zenith Bank’s cost of funding is a cause for concern and could have a potential impact on future earnings.

Furthermore, the cost of funding saw year-on-year growth from 1.4% in H1’2022 to 2.6% in H1’2023. This increase was attributed to a spike in interest rates, resulting in higher interest expenses, which escalated from ₦57 billion in H1’2022 to ₦153.6 billion in H1’2023.

Consequently, this had an impact on the net interest margin (NIM), which contracted from 7.1% to 5.9% during the same period. The investment said its estimate was supported by the bank’s accelerated Corporate & retail strategy, which includes a robust growth in FX assets amplifying the impact of higher yields on earnings.

 “We project full year-post tax earnings to be N291.94 billion with a projected dividend yield of about 12.64% and a projected dividend per share of N4.17. We retain a BUY recommendation on the stock.” Apel said.

Other Income trading gains and other operating income grew significantly, up 458.1 year on year to N471.8 billion from N84.5 billion in H1 2022, mainly due to significant revaluation gains of N355.6 billion in H1 2022 compared with a revaluation loss of N2.5 billion in H1 2022.

Impairment charge grew significantly, up 727.7% year on year to N207.9 billion in H1 2023 from N25.1bn in H1 2022, bringing H1 2023 annualised Cost of Risk to 8.8% compared with 1.4% for H1 2022.

In the period, the bank recorded a 22.8% surge in operating expenses. Overall, pre-tax profit grew strongly, up 169.5% year on year to N350.4 billion in the first half of the year.  Net profit grew 161.8% to N291.7 billion bringing annualised return on average equity ROAE to 36.9%. #Equities Analysts See 53% Upside in Zenith Bank Naira Devaluation Deepens Economic Crisis in Nigeria

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