Forte Equity Analyst: Zenith Bank Plc

Transcription

1 Yr. of Incorporation May 30, 1990 Corporate Address Victoria Island, Lagos Plot 87, Ajose Adeogun, Street Subsidiaries/ Associated Companies Date of Report Dec. 6, 2007 Company 1. Zenith Securities Ltd 2. Zenith Registrars Ltd 3. Zenith Gen. Insurance Co. Ltd 4. Zenith Pensions Custodian Ltd 5. Zenith Capital Ltd 6. Zenith Bank (Ghana) Ltd 7. Zenith Bank (UK) Ltd 8. Venus Telecoms Ltd 9. Qubit Spectrum Ltd % Holding Shareholders Share Capital: Authorized Shareholder 1. Institutional Investors Ltd 2. Estate of Chief Alfred N. 3. Lurot Burca (Nig) ltd 4. Mr. Jim Ovia 5. Mr. Alphonsus Ovia 6. Other Nigerians % 11% 7% 68% 4% 3% 6% 15,000,000,000 ordinary shares of 50kobo each Issued & Fully Paid 9,265,524,300 ordinary shares of 50kobo each. Brief History: Zenith Bank was incorporated as a private limited liability company in May 30, It secured a commercial banking license a month later on June 20, 1990 and commenced operations on 16 July, The bank became a public limited company in July 2004 and subsequently launched one of the most successful Initial Public Offers (556% subscribed) in the history of the Nigerian Capital Market. Thereafter in October same year, the bank was listed on the floor of the Nigerian Stock Exchange. The bank has about 286 business offices (connected online-real time) spread all over state capitals, the FCT, and major towns and cities in Nigeria. Zenith bank is currently in the market to raise N130 billion through a hybrid offer made up of rights issue of 1,654,557,99 units each at N36.90 per share as well as a public offer of 1,763,300,00 ordinary shares of 50 kobo each at kobo per share. The funds when raised will be applied to

2 upgrading the bank s information and communication technology infrastructure, branch network expansion, increase working capital as well as project and infrastructure financing. The offer is at a 16% discount on the market price of N46.09 and will last till January 17, Business: The bank provides universal banking services to corporate, commercial and individual customers. Its products and services range from the traditional accounts (savings, current, fixed deposits etc), to treasury and financing services, as well as investment banking. Others are equipment leasing, trade financing, fund management, import and export finance among others. The company also offers to her customers various products such as smart cards, telelink (telephone banking), internet banking and western union money transfer. Awards: The bank has bagged a number of awards from both local and international financial analysts and rating agencies. In 2007, Zenith was named as 2007 Quoted Company of the Year by the Nigerian Stock Exchange. Other awards to the bank this year include: Most Corporate Socially Responsible Bank by both THISDAY News Paper and African Banker Magazine in Nigeria and Africa respectively. For 3 consecutive years ( ), the bank emerged as the best Web-jurist award by Philip Consulting. Key Strengths: The bank has successfully promoted her brand not just within the shores on Nigeria, but beyond. It possesses strong share of the market and has continuously grown her income and revenue for the past five years. In addition, the bank s strategic repositioning and diversified funding mix with strong liquidity position and refinancing ability have placed the bank among the topmost banks in the industry. The management mix is one of the best in the industry. Performance: Zenith Bank is one of the fastest growing banks in Nigeria. In Agusto & Co Ltd banking sector report of April 2007, the bank is 2 nd in a list of the 7 banks in the First tier banks with total assets in excess of N714.5 billion. In the last financial year ended June 30, 2007, the bank recorded 53.2% and 52.4% growth in Gross earning and Profit After Tax respectively. Over the past five years ( ), the bank grew its Gross Earning by 401% from N17.8 billion to N89.20 billion while Shareholders fund moved up by 790% from N12.7b billion to N113.00b. PAT moved up by 309% from N4.4b to 18.00b. The banks stock has offered so much return to investors since it was quoted on the floor of the Nigerians Stock Exchange. Investors who bought into the banks Initial Public Offer (IPO) in 2004 at the price of N10.90 have enjoyed about 457% capital appreciation at the current price of N46.09 (including dividends and bonuses).

3 Analysis of Performance STATISTICS Share Price as at 30/ NA Net Asset value per ordinary share (19.60) (5.32) 0.20 (1.24) (8.75) *Earnings per ordinary share *Dividend per ordinary share Market Capitalisation (N'million) 413, , , , NA Fundamentals KEY RATIOS (%) Capital adequacy: - Total capital & reserves/total Assets Risk weighted capital NA NA NA NA NA Asset quality: - Loans/Assets Bad debt & specific provisions/post tax profit Bad debt & specific provisions/average assets Total loan loss reserves /Total assets , Profitability: - Cost of funds Net interest margin Other income/total income Return on average assets Return on average equity Efficiency: - Operating expenditure/average assets

4 KEY RATIOS (%) Net interest income/operating expenditure Effective tax rate Growth indicators: - Gross earnings NA - EPS growth (31.23) NA - Capital and reserves NA - Assets NA Zenith bank prides itself in the fact of being one Nigeria s most capitalized firms. In 2006, Zenith bank s total capital and reserves as a fraction of total assets was much higher than that of the industry average and exceeded that of other relatively comparable banks such as First bank, Afribank, UBA and Intercontinental banks. Although this ratio is much lower in 2007, it is apparent that the new capital raising efforts will restore the bank to its previous levels. The bank also has maintained a very impressive dividend payout history which aside the attractiveness of potential capital gains presents additional reason for investor interest. In 2003 the bank paid 35 kobo and then 70 kobo in years This increased to 72 kobo in 2006 and N1.00 in With a seemingly well entrenched dividend payout history coupled with impressive profitability performance, investors future earnings prospects from dividends are somewhat guaranteed. The red flags however appear in terms of the inability of the bank to effectively cover its liabilities with existing assets. The bank s net asset value for 2007 is negative and has been a traditional part of the bank. Whereas it can be understood as a demonstration of financial aggressiveness it is nevertheless an issue of great concern. This is particularly so when it is evaluated side-by-side with its level of bad debt and specific provisions as a percentage of post-tax profits. This ratio/indicator has fallen much below that of the industry at least in the two most recent years (2007 and 2006). It also does not compare with that of other banks such as Afribank, UBA, UBN and Intercontinental. The picture becomes clearer when the bank s 2007 growth in capital and reserves which was a mere 12.38% from a strong growth of 138% achieved in We believe however that the current offer/recapitalization should be able to correct this imbalance. Measured by the ratio of loans to assets, the bank s asset quality is reasonably good and compares very well with other operators within the industry. Whereas the average of this ratio for the following banks FBN, Afribank, UBA, UBN and Intercontinental stood at 29.27% (2007) and

5 28.11% (2006) Zenith s stood at 25% in Consequently, the bank has established a high record of quality risk assets. An assessment by Fitch s rating has rated the bank AA-( ) and A+ National (2007), confirming its good asset quality and sound earning record. From 2002 to date, Agusto & Co, Nigeria s most foremost rating agency and analyst, assigned the bank Aaa ranking thus confirming the bank s financial condition and ability to meet obligation. Zenith bank s operations are impressively profitable. Its cost of funds is one of the lowest in the industry and has averaged 3.26 since 2005 from 6.36 and 4.68 in years 2003 and 2004 respectively. It is much lower than that of Intercontinental bank as well as UBA. The bank s net interest margin has historically averaged 72% in the past five years while gross earnings have grown annually at an average rate of 55% which is higher than the average growth rates of First bank, UBA, UBN and intercontinental banks put together. Although the earnings per share growth was negative in 2005, this was primarily a consequence of the initial public offer of the bank then. In 2007, the earnings per share has grown at a much faster rate than the industry average. KEY RATIOS (%) Capital adequacy: INDUSTRY AVERAGE ZENITH FBN AFRIBANK UBA UBN INTERCONT Total capital & reserves/total Assets Asset quality: - Loans/Assets NA Bad debt & specific provisions/post tax profit Bad debt & specific provisions/average assets Profitability: - Cost of funds Net interest margin Other income/total income Return on average assets Return on average equity Efficiency: - Operating expenditure/average assets

6 KEY RATIOS (%) INDUSTRY AVERAGE ZENITH FBN AFRIBANK UBA UBN INTERCONT Net interest income/operating expenditure NA NA NA Effective tax rate NA Growth indicators: - Gross earnings EPS growth (41.82) (18.66) NA (46.93) Capital and reserves Assets Zenith bank s shares have traded at much higher price within the past twelve months than such big banks as UBA, First bank, Intercontinental, Afribank and UBN. After its 2006 public offer, Zenith bank s stocks rose from to N60.00 thereby making it the highest priced banking stock in the market. Its share value has however dropped over the past few months and weeks. Although the current market share value is N46.09 there are strong prospects of the banks market share value reaching N80.00 in the next 8 months with effective deployment of the offer proceeds. First quarter results showed a profit before tax of N10.33 billion as against N6.41 billion last year while profit after tax grew by 70% to reach N8.06 billon. Its earnings per share is much higher than other that of other big banks. See table below. Comparative Market Information Zenith FBN UBN UBA Intercontinental Afribank Current Price Year high Year Low Last Div Last Scrip 01:04 1:06 01:05 Nil nil 1:05

7 Zenith FBN UBN UBA Intercontinental Afribank EPS PE Ratio NB: the information in the above table is as at 05/12/2007. Comparative Price Movement Price /4 1/29 2/23 3/20 4/14 5/9 6/3 6/28 7/23 8/17 9/11 10/6 10/31 Date Afribank Zenith FBN UBA UBN Intercont Recommendation: Buy for Medium/Long Term.

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