Zenith Bank: Riding On Revalued Naira To Higher Profit | Independent Newspapers Limited
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Zenith Bank: Riding On Revalued Naira To Higher Profit

Posted: Aug 25, 2016 at 4:35 am   /   by   /   comments (0)



Kirk Leigh – 


Zenith Bank plc, Nigeria’s biggest bank by shareholders’ funds, has ridden the devaluation wave to profit where ordinarily it should have been submerged in profit setbacks given the deleterious effect of the exchange rate policy on the naira.

The bank with shareholder funds of $2.837 billion (according to a recent ranking by the Financial Times), had a -15.7 percent profit setback, falling to N44.84 billion from N53.18 billion in the last six months compared to the equivalent period of the last financial year. But when gains made from differences in foreign exchange are translated, it led to 50 percent growth in net profit to N75.1 billion from N48.73 billion.

The foreign exchange gains were clinched mainly in the second quarter when the full weight of the devaluation policy had sunk in and the naira lost about 30 percent in value versus the dollar.

It is instructive though to note that the bank with a dual listing on the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE) was headed for less impressive bottom line beginning from a slide in gross earnings, which retracted 6.2 percent to N214.8 billion from N229.1 billion achieved the previous half year. This is as interest income inched three percent to N181.41 billion and interest expenses fell 14.5 percent. But the interaction between the two line items dragged up net interest income 12.8 percent to N127.8 billion from N112.64 billion.

The smooth sailing interest income however got bumped by the 97.6 percent rise in losses emanating from impairments on financial charges to N14.23 billion from N7.2 billion thus shaving approximately half the gains from net interest income. As a result, pre-tax profit was set back 12.4 percent to N63.3 billion from N72.2 billion. Pre-tax profits were also hobbled by a negative trading income of negative N864 million compared to the relatively heft figure of N11.987 billion made in the equivalent period in 2015.

Taking the hint PAT sank to N44.84 billion from N53.18 billion, a 16 percent decline. This decline was however buoyed by the forex gains, lifting profits to N75.1 billion from N48.73 billion as noted earlier. This lifted net profit margin from 21 to 35 percent. This means that where the bank used to translate 21 kobo of every naira sunk into it into profit, it now achieves 35 kobo from every naira.

Investors may not be enthused at the forex-led performance, as the bank stock price has suffered a slight knock, falling 5.16 percent last week to N15.3 from N16.08 Monday, August 8. This is not too far away from the 6.71 percent loss in value of the bank stock in the last one year.

But analysts advised that investors should hold their positions in the stock, as they believe it will outperform the market, saying that year-to-date, the stock has outperformed the NSE All Share Index (ASI); it is up 11 percent compared to the ASI, which has dropped 4.7 percent.

According to the Financial Times “as of August 12, 2016, the consensus forecast amongst 18 polled investment analysts covering Zenith Bank plc advises that the company will outperform the market. This has been the consensus forecast since the sentiment of investment analysts improved on April 19, 2013. The previous consensus forecast advised investors to hold their position in Zenith Bank plc”.

The FT polled 16 analysts offering 12-month price targets for Zenith Bank plc and concludes that they “have a median target of N19.55, with a high estimate of N26.76 and a low estimate of N15.00. The median estimate represents a 27.78% increase from the last price of N15.30.” The present price of the stock at N15.30 is above the low estimate.

In the last full financial year ending December 2015, the bank grew revenues 7.74 percent from N403.48 billion to N434.73 billion while net income improved 6.30 percent from N99.28 billion to 105.53 billion.

In 2015, cash reserves at Zenith Bank fell by N256.01billion. Cash flow from financing totalled N216.54 billion or 49.81 percent of revenues. In addition, the company used N450.49 billion for operations while cash used for investing totalled N23.93 billion.

“Year-on- year the bank’s dividends per share fell by 85.71 percent, while earnings per share excluding extraordinary items rose 6.26 percent. Additionally when measured on a five-year annualised basis, both dividend per share and earnings per share growth ranked in-line with the industry average relative to its peers”.