Zenith Bank Reports Q2 2016 Results; Significant FX-Related OCI Gains Boosted PAT

Proshare

Thursday, August 11, 2016 3:51pm /FBNQuest Research 

Event: Zenith Bank reports Q2 2016 results

Implications: Underlying results (PBT) tracking in line with full year guidance (N126bn)

Positives: Significant fx-related OCI gains boosted PAT; underlying results healthy

Negatives: Marked y/y increase in loan loss provisions  

Zenith Bank’s Q2 2016 results which were published this afternoon show a significant y/y growth (140%) in PAT to N48bn. In contrast the y/y change in PBT was -20% y/y. The boost to the PAT came from fx-related gains on the back of the devaluation of the naira (c.30%) on the other comprehensive income line (N30bn in Q2 alone). This relates to translation effects from foreign subsidiaries.

The fall in PBT was driven by a combination of a c.-5% y/y decline in profit before provisions and a 128% y/y increase in loan loss provisions to N11.7bn; these more than offset a -6% y/y decline in opex. Returning to the profit before provisions line, both funding income (-1.6% y/y) and non-interest income (-14.3% y/y) contributed to the decline.

The latter stood out more as the magnitude of the declines show, due to a poor performance on trading income, and to a lesser extent, fees and commission. Sequentially, the picture was similar: PAT grew 80% q/q, compared with a PBT decline of -3% q/q.

In this instance the impact of loan loss provisions (+352% q/q) and opex (+14% q/q) proved detrimental and overshadowed a healthy 18% q/q growth in profit before provisions. Compared with our estimates, although PBT was only slightly ahead, by 8%, PAT was double our forecast because of the other comprehensive income result. Compared with the N30bn on the OCI line, we forecasted zero.

As with several of the banks which have reported Q2 results, the impact of the naira devaluation has proved significant, distorting the bottom line. Further devaluation since end-June implies that more OCI gain is likely for Zenith when it reports Q3 results.

However, focusing on the underlying results, the run-rate of the PBT implies that the bank is running in line with management’s full year PBT guidance of N126bn and consensus (N129bn). Given the material gains some of the other banks have recorded on the non-interest income line from trading income, the market is likely to be slightly disappointed that this is absent in Zenith’s results.

However, as aforementioned, the translation gains more or less make up for this on the OCI line. The only other point that will give the market some concern is the loan loss provisions line. Although we do not believe the q/q increase in provisions (relative to revenue delivered) justifies the concern, we understand why it will draw some scrutiny.

The loan loss provision figure of N11.7bn was significantly higher than our N4.4bn estimate. Having said that, profit before provisions beat our forecast by 16%, and in naira terms by more than the difference we see between the reported N11.7bn and our N4.4bn estimate.

Zenith is proposing an interim dividend of 25kobo as we expected. The yield is less than 2%.

On the back of these results, we would expect consensus full year PBT to remain broadly unchanged. As such, we expect a neutral reaction to the results once the market gets over the disappointment of the absence of fx-related gains on the non-interest income line and the negative surprise in loan loss provisions.

Year to date, Zenith shares are up 11% vs ASI’s -4.7%. Our estimates are under review. We rate Zenith shares Outperform.

Zenith Bank Q2 2016 results: actual vs. FBNQuest Research estimates (N millions)


Related News
1.       ZENITHBANK Declares N44.84bn PAT in Q2 16 Result Proposes 25k Interim Dividend SP N15.60k
2.      Zenith Bank Plc Seeks Extension to Submit Half Year Financial statements on August 31 2016
3.      Public Companies such as Zenith Bank lead efforts to connect Africans to the Internet
4.      Alleged Funding Of Ekiti State Governorship Election - Zenith Bank Plc
5.      Zenith Bank Launches Eazybanking solution
6.      Zenith Bank and AFD Sign 100Million Power Sector Credit Facility
7.       ZENITHBANK Reassuring Q1 2016 results
8.      ZENITHBANK Non-Interest Income Slumps by 52% YoY as Operating Expenses Decreases by 3.2% in Q1 2016
9.      ZENITHBANK Declares N26.57bn PAT in Q1 2016 Result SP N11.20k
10.      Erin Energy Announces Agreement with Zenith Bank on Terms of Loan Facility

11.      ZENITHBANK Expect defensive qualities to be visible in 2016

12.      ZENITHBANK Q4 15 Conference Call Earnings Presentation The key takeaways

13.      ZENITHBANK Grows Interest Income by 11.1 as Loan Loss Expense Spikes by 135 QoQ in Q4 15

14.     ZENITHBANK’s Weaker than Expected Underlying 2015 Results Likely to Lead to Cuts in 2016 Consensus Estimates

15.      ZENITHBANK Proposes 155kobo per share Dividend in 2015 Audited Result,(SP:N12.83k)

16. ZENITHBANK Appoints Prof. Ibidapo-Obe and Gabriel Upkeh as Independent Non-Executive Directors

17.   ZENITHBANK Healthy upside potential even after mixed Q3 - Proshare

18.  ZENITHBANK Impairment  Charges  Drops by 50% in Q3 2015

19.  ZENITHBANK Net Interest Income Grows by 12.6% in Q3’15

20.  ZENITHBANK Declares N83.09 bn PAT in Q3'15 result,(SP:N17.78k)

21.   Zenith Bank Q3 2015 returns slower growth (9% y/y) in funding income

22.  ZENITHBANK on Course to Consolidate Its Industry Leadership; Grows Earnings by 55%

23.   ZENITHBANK declares 25kobo Interim Dividend in Q2'15 result,(SP:N16.40k)

 

Related News
Proshare is Nigeria’s Premier Financial, Business and Economic Information Hub (since 2006)
Registered Office: Plot 590B, Lekan Asuni Close, Omole Phase II, Isheri LGA, P.O. Box 18782, Ikeja, Lagos, Nigeria. Telephone: 0700 PROSHARE (070077674273)
Some of our Trademarks are: WebTV, TheAnalyst, Proshare, Personal Finance, The Nigerian Capital Market Reports, Money Africa, The Nigerian Investor, Making Money in the Nigerian Capital Market, Investor Relations Service, Proshare Investment Clubs, Evaluating your Financial Health, Becoming your own Stock Analyst
Proshare - Facebook Proshare - Twitter
SCROLL TO TOP