Zenith Bank still worth holding on resilient earnings post-Q4 2014 results


Wednesday, March 11, 2015 9:46 AM / FBN Capital Research

2015 guidance strong in light of current circumstances
: Zenith Bank management’s guidance for 2015 (15-20% loan growth, maximum cost of risk of 1%, PBT growth of 6%) appears to make light of Nigeria’s macro issues. Some element of the naira devaluation explains the strong loan growth outlook but beyond that, management’s confidence is supported by claims of strong demand (including for working capital) across several sectors and expectations of market share gains.

We agree with the latter in particular and had factored it into our previously published estimates. As such, we have raised our 2015E EPS estimate by only 6.2% despite Q4 2014 PBT beating our forecast by 26%.

Notwithstanding, we are slightly conservative (PBT growth of 4% in 2015E) relative to management, with a loan growth assumption of 16%, a slightly higher cost of risk estimate (1.2%) and a further slowdown in non-interest income growth to 3% (from 6% in 2014). Our decision to increase our risk free rate by 100bps to 16% explains why we have increased our price target by just 3.9% to N20.0.

Zenith’s 18.1% gain ytd (ASI: -9.6%) leaves our price target below the current share price. As such, we retain our Neutral recommendation.

2014 in-line with guidance but ahead of our expectations:
Zenith met its full year PBT target of N120bn (+8.3% y/y). Q4 2014 PBT of N33.0bn was up 19.7% y/y while Q4 2014 PAT growth was less impressive at 6.5% y/y because tax more than doubled y/y and other comprehensive income fell -78% y/y.

While funding income grew by a modest 3.9% y/y to N63bn, non-interest income more than doubled y/y to N29.7bn, and helped to offset a loan loss provisions increase of 60% y/y, opex increase of 24% y/y and a reduction to zero of discontinued operations. Sequentially, double-digit revenue growth more than offset cost/loan loss expense increases.

Again, non-interest income was significant: it grew by 96% q/q. Notwithstanding, PAT fell by -9.1% q/q because of a marked reduction in other comprehensive income. Relative to our forecasts, PBT was ahead by 26% and PAT by 15%, thanks to both funding income and non-interest income surprising positively.


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