ZENITHBANK’s Weaker than Expected Underlying '15 Results Likely to Lead to Cuts in '16 Consensus Est


Tuesday, March 15, 2016 05:12PM /FBNQuest Research

­Event: Zenith Bank reports Q4 2015 results

Implications: Weaker-than-expected underlying results likely to lead to cuts to 2016 consensus estimates

Positives: Limited; flattish funding income performance y/y, but 8.5% ahead of our expectations

Negatives: Both PBT and PAT down by more than 20%

Zenith Bank’s results which were released this afternoon showed that the full year PBT came in at N126bn, well below the N145bn that management guided to back in August 2015.

We believe that the market was already expecting the PBT to come in well below N145bn guidance. Having said that, the N126bn is still somewhat of a negative surprise. The tax line came to the bank’s rescue, however, leading to a PAT of N104.5bn, up 1.3% y/y. This PAT result was broadly in line with our expectations.

Focusing on the Q4 2015 figures, PBT of N21.6bn was down -35% y/y while PAT fell -20% y/y to N22.8bn. The decline in PAT was less than that on the PBT line because of a material tax rebate of N1bn. Returning to the PBT, the main driver was a poor revenue performance.

While funding income was flat y/y at N63bn, non-interest income fell -85% y/y to N4bn. Even if we focus on the combined revenue performance, profit before provisions was down -27% y/y. While loan loss provisions (-27% y/y) and opex (-22% y/y) provided some offset, these were insufficient to make any real impact on the weak revenue performance.

Sequentially, both PBT (-32% q/q) and PAT (-31% q/q) were also below the Q3 results. This time around, non-interest income (-84% q/q) and loan loss provisions (+136% q/q) were the two key lines which weighed on the results.

Relative to our forecasts, the underlying results were below expectations. PBT missed by 24%. However, PAT was only 5% lower than what we were expecting because of the tax rebate. While funding income, loan loss provisions and opex all surprised positively, the weakness in non-interest income proved significant and weighed down the results.

The bank has proposed a final dividend of N1.55. This is well ahead of the N1.26 we had forecast. The implied yield is 12%. We believe the aggressive dividend is likely to overshadow the weaker-than-expected PBT results initially. Once the dust settles, we expect the market to focus on the potential implications of the weaker revenue lines on 2016 results.

Our estimates are under review. We rate Zenith shares Outperform.

Zenith Bank Q4 2015 results vs. FBNQuest estimates

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