Zenith Bank: Profitability to Remain Best in Class in 2020 – Vetiva
Equity analysts at Vetiva Capital have said Zenith Bank Plc.’s profitability will remain best in class for financial year 2020.
Analysts target price for lender’s stock is pegged at ₦30.17, though it traded at ₦16.20.
This represents more than 86% upside, though the bank’s stock had lost 12.90% of its value year to date.
Zenith Bank Plc reported an impressive earnings in the first quarter of 2020 followed an 8% year on year growth in top line.
The uptick came despite a 7% year on year decline in interest income to ₦114.3 billion.
Analysts said the earnings improvement was driven by a 61% year on year income in non-interest income to ₦52.5 billion.
This was however as result of 339% spike in revaluation gains to ₦14.7 billion.
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MarketForces recalled that the Central Bank of Nigeria had made adjustment to its official exchange rate from ₦305 to ₦360 to a dollar in the first half.
“We note that similar gain were recorded across the industry in the aftermath of Naira devaluation”, Vetiva said.
Also, despite an 89% year on year increase in provision to ₦3.9 billion and 20% growth in operating expenses to ₦71.2 billion, Zenith was able to maintain bottom line at ₦50.5 billion.
Again, in spite of the fact that lender’s recorded 16% year on year improvement in income from loans, these gains were offset by 64% decline in income from Treasury Bills.
Going forward, analysts at Vetiva Capital said they are expecting further decline in interest income.
Especially, in the second half of 2020 due to expected increase in loan defaults and persistently weak yield environment.
On the other hand, analysts said the bank impressive non-interest income growth of 61% provides a potential upside for gross earnings.
In addition, Analysts explained that FX revaluation and trading income are expected to significantly boost the bank’s performance in 2020.
Vetiva capital stated in the equity note that it expects bank’s operating expenses to be contained at 10%.
This resulted to lower profit after tax projection of ₦199.6 billion in 2020 as against ₦208.84 billion in 2019.
This yields return on average equity of 20%, and expected earnings per share of ₦6.36 and dividend per share of ₦2.80.
