CardinalStone Earnings News - Zenith Bank Plc 9M'18 results - EPS expands by 11.4% YoY to N4.58

18 October, 2018

Good afternoon,

Zenith Bank Plc (ZENITHBANK) 9M'18 results "" Gross earnings declined by 10.7% YoY to N474.6 billion, in line with our estimate of N484.9 billion (-2.1% deviation). In contrast, before tax profit improved by 9.7% YoY to N167.3 billion, in line with our N165.0 billion projection (+1.4% deviation).

Other highlights:

·     Interest income improved by 30.2% QoQ to N110.4 billion during the quarter. This was mostly bolstered by a 213.9% growth in income from investment securities, as income from loans and advances declined (-2.5% QoQ) for the third consecutive quarter in FY'18. This largely resonates with the sustained contraction in loans and advances (-13.1% YtD).

·     Non-interest income slipped by 37.3% QoQ to N42.0 billion. During the quarter, the bank recorded decline across fees and commission income (-10.1% QoQ), derivative and securities trading income (-54.0% QoQ) and FX revaluation gains (-43.0% QoQ).

·     Unsurprisingly, operating expenses declined in Q3'18 by 21.2% QoQ given that the bank had fully booked its AMCON levy for the year as at H1'18. Overall, cost to income ratio declined to 50.1% from 52.7% in H1'18

·     Loan loss charges increased slightly by 4.8% QoQ during the quarter. Cumulatively though, impairment losses reflect a 69.5% YoY decline compared to 9M'17. Overall, cost of risk remains flat at 0.9%.

·     Net loans to customers and deposits from customers declined by 13.1% and 4.7% to N1.8 trillion and N3.3 trillion respectively, while total assets improved slightly by 0.4% to N5.6 trillion.

Analyst take: Overall, ZENITHBANK's 9M'18 result was largely in line with our expectation, other than the consequence of lower effective tax rate (9M'18 "" 13.8%; 9M'17 "" 15.2%) on after tax profits. We highlight the sustained contraction in the bank's loan book (-13.1% YtD) and we remain skeptical about management's ability to achieve its guidance of 2.5% by FY'18. Notwithstanding, we expect income from investment securities to continue to provide buffer for NIM, given that the bank grew its interest yielding assets (ex-loans and advances) by 7.9% in Q3'18.

Based on our last review, our target price for the counter is N35.23 (BUY) which is a 56.23% upside to last close price of N22.55.

Kindly click here for a copy of Zenith Bank Plc 9M'18 results.

Regards,

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