Monday, April 27, 2015 9.39AM / FBN Research Capital
The Our earnings forecasts largely unchanged
Although Zenith Bank’s (Zenith) Q1 2015 earnings came in ahead of our expectations, we have kept our 2015-16 earnings forecasts broadly unchanged.
We have limited the increase to our full year non-interest income estimates to the extent to which the Q1 result surprised positively but carried forward slightly more than the disappointment shown in funding income.
Our checks indicate that the impact of withdrawal of funds by the CBN as a result of the CRR is higher than we had thought, weighing on interest income. At the same time, a less favourable deposit mix pushed up cost of funds temporarily.
While we expect the latter to reverse/normalise, we expect the former to have a more lasting effect.
As for valuation, having reduced our risk free rate to 14.5% from 16.0%, we have increased our price target by 10% to N22.0. We retain our Neutral rating.
Non-interest income, OCI boosted Q1 2015
Zenith’s Q1 2015 PAT grew strongly, by 27% y/y to N28.7bn, faster than PBT (+15% y/y) because of a significant positive result (N1.1bn) in other comprehensive income.
The 15% y/y PBT growth was driven by non-interest income which grew by a staggering 40% y/y to N31.9bn.
In contrast, funding income fell -6% to N42.6bn because interest expense of N38.8bn grew much faster (+50% y/y) than interest income (+14% y/y).
This is in spite of the fact that loan growth has visibly outpaced deposit growth in the last 5 quarters. This apparently anomaly can be explained by the fact Zenith saw its net interest margin fall to 6.2% from over 8.0%.
Although both Opex and loan loss provisions grew by mid to high single digits, the impact of their growth was muted relative to non-interest income.
Sequentially, both PBT and PAT were flattish, a reflection of Zenith’s record Q4 2014. While non-interest grew 8% q/q, funding income declined -33% q/q.
Unlike the y/y comparables, both loan loss provisions and Opex declined q/q, by -75% q/q and -24% q/q respectively.
Relative to our forecasts, PBT and PAT were ahead by 13% and 16% respectively. This was mainly down to the positive surprise on the non-interest income line (+47%). There were also positive surprises in loan loss provisions and Opex.
1.Analyst gives a BUY Rating on Zenith Bank Plc on Q1 2015 Results