Event

Zenith Bank Plc (‘The Group’), in its recently released full year results, reported a 24% year-on-year gross earnings growth to N945.55bn, driven by strong interest income and non-interest income growth. However, profit after tax declined by 8% year-on-year to N223.91bn, occasioned by a steep impairment loss incurred on its Ghana bond exposures.

Nonetheless, the Group declared N2.90 as final dividend (FY 2021 final dividend: N2.80), in addition to the N0.30 interim dividend declared and paid during the fiscal period. Overall, the Group’s total dividend for FY 2022 stood at N3.20, representing a 10% increase from N3.10 total dividend in FY 2021. The dividend qualification date is on the 14^th of April, 2023 while the payment date is on the 2^nd of May, 2023.

Performance Metrics Remain Solid

The Group’s financial metrics were sound in FY 2022, with a capital adequacy ratio well above regulatory threshold. Although CAR declined to 19.80% in FY 2022 from 21.00% in FY 2022, it was above the 16% benchmark. The 120 basis points decline of CAR was due to increased risk assets (i.e., loan book expansion) during the fiscal period.

Asset quality was also relatively strong, with a non-performing loan (NPL) ratio of 4.30% in FY 2022 (FY 2021: 4.20%), which was below the regulatory threshold of 5.00%. Opportunities for additional growth and asset creation were evident with the Group’s 75% liquidity ratio in FY 2022 (FY 2021: 71.60%).

Outlook

In terms of business fundamentals, our outlook for the Group is strong, as we expect interest income to grow on the back of loan book expansion. A sustained rising interest rate environment is expected to also be positive for the Group, although net interest margin may not respond sharply due to the low sensitivity of financial assets to interest rates, relative to financial liabilities. Backed by a strong liquidity profile and capital, we believe that the Group is well positioned to capture growth opportunities, despite weak macroeconomic fundamentals.

In addition, we expect growth in the Group’s digital banking activities to be sustained in the medium term, particularly given the recent policy focus on a cashless society. Hence, e-banking income is expected to be accretive to earnings.

We forecast a 27% growth in gross earnings to N1.20trn in FY 2023, majorly driven by interest income. The underlying assumptions are higher asset yields and asset volumes. Based on expectations for a currency depreciation in FY 2023, we expect the Group to record foreign exchange revaluation gains, and this should spur non-interest income growth.

On the flip side, we modelled additional impairment in our forecasts. Although the management stated that impairments on Ghanaian treasury bills were not done because no information or directive were given by the Ghanaian authorities on treasury bills, we decided to take a conservative approach by factoring the possible impairments in our forecasts.

Our earnings per share (EPS) projection for FY 2023 is N8.51, representing a 19% increase from N7.13 in FY 2022. We estimate a N29.14 fair value for the stock which implies a 3.43x justified price-to-earnings multiple. At the stock’s current price of N25.50, it trades at a 14% discount to our fair value. The total upside (including the dividend yield) is 27%. Therefore, we recommend a BUY for the stock.

Please follow the link “Zenith Bank FY 2022 – The Impact of Ghanaian Exposure Weighs on Results” to view the whole report.

Thank you.