We maintain our BUY recommendation for Zenith Bank Plc. The Company reported relatively impressive financial performance in Q3 2022, majorly driven by the rising interest rate environment.

Gross earnings grew by 25% year-on-year to N215.81bn, on the back of interest income which rose by 42% YoY to N149.03bn. An upward repricing of assets and growth in the loan book spurred interest income growth.

Interest expense growth, however, outpaced interest income growth, with a 69% YoY increase to N50.87bn. This was due to a higher portion of term deposits in the Group’s deposit base as of 9M 2022. Term deposits grew by 137% YoY and accounted for one-third of the YoY total deposit growth as of 9M 2022. Also, total borrowings grew by 72% YoY. The rise in costly funding sources resulted in higher interest expenses in Q3 2022. Notwithstanding, net interest income (net of impairments) grew by 31% YoY to N86.19bn

Non-interest income declined slightly by 2% YoY to N66.78bn. The decline was induced by an 80% dip in trading gains, despite a 20% YoY growth in fee and commission income.

Operating income grew by 13% YoY to N149.18bn while operating expenses increased by 11% YoY to N76.63bn. Effectively, the cost-to-income ratio moderated to 51% in Q3 2022 (Q3 2021: 52%).

As a result of the cost efficiency, profit before tax grew by 16% YoY to N72.54bn, while profit after tax grew by 15% YoY to N62.92bn.


We expect the Group to deliver even more impressive numbers in Q4 2022 and in the near term on the back of rising interest rates. The Group is equipped with a strong balance sheet (robust capital levels, c.N4trn loan book size, and adequate liquidity) to maximise the opportunities that come with the high-yield environment.

On the flip side, inflationary pressures and other regulatory-induced costs are the major risks to earnings. Also, we believe that risk-asset creation might not be too aggressive, considering the current challenging macroeconomic situation.

Given that the Group’s Q3 2022 numbers aligned with our expectations, we leave our FY 2022 earnings per share forecast unchanged at N8.55. Our fair value estimate is also unchanged at N27.34. At the stock’s current market price, the price-to-earnings ratio of 2.33x is a steep discount to the 3.30x historical average P/E, and our estimated justified P/E of 3.20x. Therefore, we see a 37% price upside in the stock.

The stock’s one-year dividend yield is 16% – which sums the total expected return to 53%. On a year-to-date basis, the stock declined by 21% – underperforming the banking index which declined by 8% during the same period. We attribute the stock’s decline to a general waning interest in the Nigerian equities market due to underlying macroeconomic vulnerabilities. Meanwhile,  we think that the stock’s fundamentals do not justify the current market valuation.

Please follow the link “Zenith Bank Q3 2022 – Strong Performance on the Back of Rising Yield Curve” to view the whole report.

Thank you.

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