Zenith Bank Plc: A brilliant year



By Folakemi Emem-Akpan



Zenith just released its 2016 FY results, and the results were brilliant. We predicted last year that shareholders would receive a better dividend for their investments come year end, and they did. At N2.02 dividend per share, investors are reaping of Zenith’s excellent business-generating and profit retention abilities. The N2.02 DPS is higher than the N1.80 they received the preceding year.

A good look of the bank’s accounts shows that it focused equally on both core and non-core banking operations during the course of the year, and this broader business base helped the bank in its profit retention abilities.

Moreover, the Zenith Bank stock is currently undervalued and is not selling at a price that reflects its potentials. Prospective investors who have the capital wherewithal might consider buying into the stock right now and holding it for a while for the purpose of capital gains.

The bank continues to enjoy proficient management, and will more likely flourish more, resulting in further improvements in profit making, retention and sharing to shareholders.


Core operations

Zenith Bank continued its increased revenue trend for its 2016 financial year. The bank recorded an all-time high revenue of N507.9 billion, a 17.4 per cent growth over the N432.5 billion revenue recorded in 2015. This better revenue was achieved through a combination of better core-banking operations, as well as a step up in the tempo of the bank’s non-core operations.

Clients patronised Zenith Bank much more in terms of taking out loans, overdrafts and advances, and the bank’s loan portfolio increased significantly to N2.29 billion in 2016 from N1.99 billion. Despite this, average lending rate further decreased over the preceding year’s (to 18.6 per cent from 17.5 per cent)  while average deposit interest rate stayed stable at 4 per cent. This means that the bank charged its lenders the same interest rate, but paid its depositors a better interest.

This caused net interest margin, the true test of a bank’s effectiveness in its core banking operations of lending and borrowing, to further moderate to 62.5 per cent in 2016 from 64.5 per cent in 2015 and 65.9 per cent in 2014.

Pre-tax profit grew by as much as 24.8 per cent to N156.7 billion from N125.6 billion. This 24.8 per cent growth rate is the highest recorded in four years.

Earnings per share, was predictably higher than that of the prior year, closing at 412 kobo, as compared to 336 kobo before. Dividend per share also improved to 202 kobo in 2015 from 180 kobo in 2015.


Profitability ratios

The bank recorded excellent results when it comes to profitability in 2016. With a higher revenue as well as a higher profit, the bank recorded a better profit margin. The bank’s profit margin was 30.9 per cent, higher and between than 29.0 per cent in the preceding year. What this means is that for every N100 earned by the bank in the course of the year, a whopping N30.90 made it to the profit position, as compared to N29.00 for the year preceding 2015. This is one of the highest levels of profit margin in the Nigerian economy, and is to be commended.

Assets deployed also earned more in 2016 than it did in 2015. Return on assets (ROA) for the year stood at 3.3 per cent in 2016, as compared to 3.1 per cent in 2015. For the 2015 financial year, Zenith Bank deployed equity valued at N704.5 billion and for every N100 equity deployed, the bank made an after-tax profit of N18.40, an improvement over the profit of N17.80 made in 2014. These ROA and ROE results were excellent and are to be commended.

During the course of the year, the number of employees in the bank’s employ decreased to 7,120 from 7,416. It seems the decrease in employee number paid off because, earnings per employee improved to N71.3 million on the average, up from N58.3 million in 2015. This is an indication of employee productivity and company efficiency.


Other ratios

The proportion of the bank’s loans classified as non-performing in the course of the year was 3.02 per cent, higher than 2.2 per cent in 2014. At 3.02 per cent, it is however still low enough to suggest an excellent recovery strategy for loans. This result also fell under the regulatory threshold of 3.66 per cent.


In terms of capital adequacy, Zenith Bank performed better in 2016 than it did in 2015, as its result for the year was a little lower than the preceding year’s. Its equity (a company’s primary and cheapest source of funding) could finance about 23.0 per cent of the loans and advances it gave out to borrowers, up from and better than 21.0 per cent recorded in the erstwhile year.

Having a debt to equity ratio of 5.7 shows that the bank is using N5.70 of liabilities in addition to each N1.00 of stockholders equity. In other words, the bank is using N5.70 of total capital for every N1.00 of equity capital, same as it did in the erstwhile year.

Sustainable growth

For the review year, the company had a profit of N129.7 billion, and it retained 51 per cent of it. This 51 per cent retention ratio was a little higher than the retention ratio the bank implemented in 2015, despite the fact that shareholders got a better dividend (202 kobo) than 2015.

The bank was careful to maintain the level of its asset turnover as well as that of the assets/equity ratio. Both at 0.11 times and 7.63 times respectively, stayed on the same level they were in 2015.

In 2016, the bank’s actual growth (growth of income), at 17.4 per cent was below its sustainable growth 11.3 per cent), suggesting that the company grew above its growth ceiling. Simply put, it achieved, and even overshot, its inherent capacity for growth. This was slightly different from the scenario in 2015, when sustainable growth was higher than actual growth, at that time indicative of a company operating at a lower level than its latent possibilities.


Stock value

As at March 25 2017, Zenith Bank’s stock traded at N13.49, and although we don’t say this often, we say it now. It was undervalued at that price. Here’s why.

It has a low earnings yield of 0.31 and P/E ratio of 3.27 as at same date. The combination of these figures gives the investor a basic understanding of how wealthy the company is for the investor, and their interaction points to undervaluation.

Other indices also support this undervaluation theory. For example, the bank had a book value of N704.5 billion and a market capitalisation of N423.6 billion, putting its book value/market cap ratio at 1.67. Traditionally, a book to market value ratio of more than one is an indication of undervaluation.

Also, net assets per share was a high N22.43, easily higher than the current market price of N13.49, also a sign of undervaluation.

At the current market price, we recommend a buy for investors who can afford to and are willing to hold on to the stock for a while.



Unique strategies


One unique thing about Zenith Bank is its commitment to promoting good corporate governance and best practices in the conduct of its business. It has been generally adjudged a corporate governance compliant bank by the Nigerian Stock Exchange (NSE), hence its recent listing on the Premium Board of the Exchange. Its management and directors always say that it is a Zenith Bank philosophy that good corporate governance engenders public trust and ultimately ensures that the company meets the expectation of all stakeholders.

The Bank has a diverse shareholding structure with no single ultimate individual beneficiary holding more than 10 per cent of the bank’s total shares. Hence, a board meeting is truly a meeting of minds to strategise how to continually move the bank forward.

For its 2016 FY, the bank concentrated equally on both core banking operations and non-core operations, and this was a strategy that earned it more revenue.


It is possible to generate business and make profit even in a recessive economy. This is the lesson that Zenith is teaching us. What is needed to get through this period is better planning and diversification.

*Source: Zenith Bank’s 2016 financial report

*The Nigerian Stock Exchange


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