Friday, August 12, 2016 8:31am /Vetiva Research
· Strong Q2 top line up 16% q/q, 10% ahead of Vetiva estimate
· Loan loss doubles, up to N14.2 billion
· Devaluation supports credit growth, up 15% ytd
· Board of Directors declare N0.25 interim dividend
PAT bows to higher provision and tax
ZENITHBANK’s H1’16 results showed weaker than expected bottom line. Whilst performances across most line items came in just in line with our expectation, higher loan loss expense and a higher tax expense were the key pressure points.
Recovering from a relatively weak top line performance in Q1’16, Gross Earnings was 16% stronger q/q in Q2’16 (10% ahead of our Q2 standalone estimate) amidst improvement in both Interest and Non-Interest Income.
Despite a 9% q/q rise in Interest Expense in Q2’16 (largely pressured by the higher interest rate environment), the expense line was contained at N54 billion for H1’16 vs. H1’15: N64 billion. Consequently, Net Interest Income rose 13% y/y N127 billion – 11% ahead of our N115 billion estimate.
However, in line with recent industry trend, loan loss expense doubled y/y to N14.2 billion - following a Q2’16 standalone provision of N11.6 billion (Q1’16: N2.6 billion) and translating to a CoR of 1.3%.
Despite the modest q/q rise in Non-Interest Income for Q2’16, the income line remained significantly weaker y/y for H1’16 – pressured by the N864 million trading loss recorded vs. the N12 billion gain reported in corresponding period of 2015. With Operating Expense coming just in line with our N82 billion estimate, (4% better y/y), PBT came in at N63.3 billion (in line with our N63.7 billion estimate).
However, given that the dividend declared in FY’15 (N56.5 billion) was higher than taxable profit, ZENITHBANK’s tax was assessed on the dividend declared (minimum tax provision), resulting in an additional tax of N16.95 billion. Consequently, with an estimated H1’16 tax of N18.4 billion, PAT (N44.8 billion) was down 16% y/y and 14% behind our N52.3 billion forecast.
TP revised to N26.40 (Previous: N27.46)
We have reflected the surprising rise in loan loss expense by raising our FY’16 CoR forecast to 1.1% (Previous: 0.5%). With loan portfolio up 15% ytd (due to devaluation impact), we revise our loan growth forecast to 18% (Previous: 6%).
In all, we are impressed with the improved top line performance observed in Q2’16 and expect the higher yield environment to continue to support earnings.
Finally, we revise our tax rate upward to 22% (Previous: 18%) to account for the minimum tax liability provision.
1. Zenith Bank Plc Records Group Capital Adequacy Ratio of 19% in Q2'16
2. ZENITHBANK Declares N44.84bn PAT in Q2 16 Result Proposes 25k Interim Dividend SP N15.60k
3. Zenith Bank Plc Seeks Extension to Submit Half Year Financial statements on August 31 2016
4. Public Companies such as Zenith Bank lead efforts to connect Africans to the Internet
5. Alleged Funding Of Ekiti State Governorship Election - Zenith Bank Plc
6. Zenith Bank Launches Eazybanking solution
7. Zenith Bank and AFD Sign 100Million Power Sector Credit Facility
8. ZENITHBANK Reassuring Q1 2016 results
9. ZENITHBANK Non-Interest Income Slumps by 52% YoY as Operating Expenses Decreases by 3.2% in Q1 2016
10. ZENITHBANK Declares N26.57bn PAT in Q1 2016 Result SP N11.20k
11. Erin Energy Announces Agreement with Zenith Bank on Terms of Loan Facility
12. ZENITHBANK Expect defensive qualities to be visible in 2016
13. ZENITHBANK Q4 15 Conference Call Earnings Presentation The key takeaways
14. ZENITHBANK Grows Interest Income by 11.1 as Loan Loss Expense Spikes by 135 QoQ in Q4 15
15. ZENITHBANK’s Weaker than Expected Underlying 2015 Results Likely to Lead to Cuts in 2016 Consensus Estimates
16. ZENITHBANK Proposes 155kobo per share Dividend in 2015 Audited Result,(SP:N12.83k)
17. ZENITHBANK Appoints Prof. Ibidapo-Obe and Gabriel Upkeh as Independent Non-Executive Directors
18. ZENITHBANK Healthy upside potential even after mixed Q3 - Proshare
19. ZENITHBANK Impairment Charges Drops by 50% in Q3 2015
20. ZENITHBANK Net Interest Income Grows by 12.6% in Q3’15
21. ZENITHBANK Declares N83.09 bn PAT in Q3'15 result,(SP:N17.78k)
22. Zenith Bank Q3 2015 returns slower growth (9% y/y) in funding income
23. ZENITHBANK on Course to Consolidate Its Industry Leadership; Grows Earnings by 55%
24. ZENITHBANK declares 25kobo Interim Dividend in Q2'15 result,(SP:N16.40k)