Modupe Gbadeyanka
By National Daily
For a second session in a row last Friday, Zenith Bank shares depreciated despite a sharp rise in its first-half earnings.
Last Thursday, the lender announced that its pre-tax profit in the first six months jumped 71 percent to N92.2 billion.
Afterwards, the board of directors of the financial institution declared an interim dividend of 25 kobo, an amount some investors believed was lower than expected.
According to National Daily, Zenith Bank stock fell one percent to N23.75 on Friday, the lowest since July 26.
In May 2017, the bank raised $500 million Eurobond which could increase its funding costs.
Recall that the first tier lender Q2 2017 results showed that PBT grew by a remarkable 120% y/y to N48 billion. The strong PBT growth was mainly driven by a stellar growth of 389% y/y to N88.5 billion on the non-interest income line.
Growth on this line was underpinned by a strong performance in forex trading income which grew to N46 billion from a forex loss of N496 million in 2016. In contrast, funding income came in flat y/y.
The strong revenue contribution was strong enough to completely offset increases of 196% y/y and 39% y/y in loan loss provision and opex respectively.
Further down the P&L, PAT declined by 19% y/y to N31.4 billion mainly because of a negative result of N6.3 billion in other comprehensive income line (OCI) compared with a strong gain of N30.2 billion in Q2 2016 on the same line.
On a sequential basis, the results mirrored the y/y trends. PBT was up by 9% q/q.
Again, robust growth of N199% q/q on the non-interest income line was the key driver underpinning the q/q growth in PBT. PAT fell by -19% q/ because of the negative result on the OCI line.
Compared with our forecasts, PBT beat by 22%.
However, PAT was broadly (-4%) in line with our N32.8 billion forecast.
In terms of the H1 performance, PBT and PAT expanded by 71% y/y and 8% y/y to N92.2 billion and N70.3 billion respectively.
Although both revenue lines contributed to the strong results, non-interest income which grew by 254% y/y was the major driver. The y/y growth on the funding income line was 9% y/y.
The company is proposing an interim dividend of N0.25 which is flat y/y and in line with our expectations. The proposed dividend translates to a dividend yield of 1.0% and a payout ratio of 11.2%.
While the strength of the non-interest income result will be welcomed, we believe the weakness on the funding income line and the spikes in impairments and opex will also attract investors’ attention.
On funding income, it appears that Zenith Bank also may have struggled to capitalise (effectively) on the elevated yields in the fixed income market because sourcing deposits may have been trickier, and the workings of the NAFEX forex market may also have led to a loss of funds from customers.
Its deposits fell -1% q/q. Pending comments from management, we believe that the bank may have capitalised on the strong set of results to book significantly higher provisions. It is not clear why opex jumped 55% q/q.
Zenith Bank’s H1 PBT tracks well ahead of consensus FY 2017 PBT forecast of N165 billion. As such, we expect to see marked upward revisions to consensus PBT forecast. The shares have outperformed the Index this year. They have gained 62.7% ytd vs. 41.8% ytd for the ASI.
