Zenith Bank Plc: A commendable year
By Folakemi Emem-Akpan
Introduction
Our analysis of Zenith Bank Plc’s newly released 2017 results shows that it enjoyed an acceptable level of profitability during the course of the year. It was able to step up the level of its core banking operations, and generally recorded better profitability ratios than it did in the preceding year.
With a profit for the year that was higher than that of the prior year, the bank was able to pay shareholders a higher level of dividend than it did in the preceding year.
Core operations
The 2017 FY was an impressive year for Zenith Bank, as it was able to expand its core banking operations during the year, as well as step up its non-core banking businesses. It therefore had a better gross earnings of N745.2 billion in 2017, up from N507.9 billion in 2016. It however had a lower interest margin of 54.4 per cent, lower than 62.5 per cent in the prior year, and this was not indicative of a better efficiency in the core business of lending and borrowing. This lower net interest margin was perpetuated despite a wider gap between average lending rate and average interest rate. Average lending rate increased over the preceding year’s, from 16.8 per cent to 22.6 per cent, while average deposit interest rate also increased to 6.3 per cent from 4.8 per cent. This means that the bank charged its lenders a higher interest rate, and paid its depositors a higher interest as well.
During the course of the year, the bank gave out a lower level of loans and advances, but received more deposits from customers.
Profit for the year, at N177.9 billion, was about 37.2 per cent more than the N129.7 billion profit recorded in the preceding year.
Earnings per share, was predictably higher than that of the prior year, closing at 566 kobo, as compared to 412 kobo in the preceding year. Dividend per share also improved to 270 kobo in 2017 from 202 kobo in 2016.
Profitability ratios
The bank recorded mostly better results in respect to profitability in 2017. With a higher revenue as well as a higher profit, the bank was however not able to record a profit margin that was better than that of 2016. At 27.3 per cent, the bank’s profit margin was lower than the 30.9 per cent recorded in the prior year but it still needs commendation for a worthwhile performance. What this means is that for every N100 earned by the bank in the course of the year, N27.30 made it to the profit position, as compared to N30.90 in 2016.
The bank was however able to squeeze as much profit as was possible from assets, as assets deployed earned slightly more in 2017 than it did in 2016. Return on assets (ROA) for the year stood at 3.6 per cent in 2017, compared with 3.3 per cent in 2016. This is commendable.
For the 2016 financial year, Zenith Bank deployed equity valued at N821.7 billion and for every N100 equity deployed, the bank made an after-tax profit of N21.70, a progression over the profit of N18.40 made in 2015.
Employing more employees in 2017 than in the previous year, earnings per employee improved to N121.5 million on the average, up from N71.3 million in 2016. This is an indication of employee productivity and company efficiency.
Other ratios
The bank had a better capital adequacy standing in 2017 than it did in 2016, meaning that the bank is doing well in its primary business of giving out loans. Zenith Bank’s capital adequacy improved in 2017 to 27.0 per cent, higher than 23.0 per cent in the prior year, and also higher than the 16 per cent rate mandated for Systemically Important Banks.
For the 2017 financial year, the bank recorded a higher proportion of loans classified as non-performing when compared to the prior year’s. The 4.7 per cent of non-performing loans was higher than 3.02 per cent it recorded in the preceding year, and also overshot the Central Bank’s regulatory threshold of 3.66 per cent.
The bank had a debt to equity ratio of 5.8, meaning that it is using N5.80 of liabilities in addition to each N1.00 of stockholders equity. In other words, the bank is using N6.80 of total capital for every N1.00 of equity capital, higher than the N6.70 it did in the erstwhile year.
Sustainable growth
Zenith Bank paid shareholders a higher level of dividend in 2017 than it did in 2016. Shareholders received a total dividend of 270 kobo, higher than 202 kobo in the prior year. Because profit for the year was significantly higher than that of 2016, retention ratio in 2017 was however almost on par with that of 2016. Retention ratio was 0.52 times, as compared with 0.51 times in the prior year.
Assets/equity ratio was higher than that of the prior year while asset turnover was also higher. Analysis shows that sustainable growth for 2017 was 12.9 per cent, higher than 11.3 per cent in the preceding year, and this means that the bank’s growth ceiling, utilizing only its own source of funding for growth, improved. Meanwhile, actual growth was 46.7 per cent, higher than that of the preceding year. The actual growth was higher than sustainable growth, meaning that Zenith Bank grew above its ceiling.
Stock value
Our analysis shows that Zenith Bank’s stock is closer to being fair priced than it is overvalued or undervalued. Currently trading at N28.75, it is one of the higher priced stocks on the banking sub-sector of the Nigerian Stock Exchange (NSE), but its net assets per share stood at N26.17 and this was close to the current market price of N28.75.
Also, book value at N821.7 billion is also very close to the size of its current market capitalisation which stands at N902.5 billion.
The stock is however not low priced enough that it is easily accessible by all kinds of investors. As it is one that pays dividend on a regular basis, we recommend a buy for those who can afford it.
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 expectations 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 on how to continuously move the bank forward.
Conclusion
This has been a good year for Zenith Bank. It remains to be seen if the 2018 financial year will end on the same note.
*Source: Zenith Bank’s 2017 financial report; The Nigerian Stock Exchange