Nigeria Banking Sector Coverage - December 2011 'Bad ... - Imara

EQUITY RESEARCH
NIGERIA
DECEMBER 2011
BANKING
The bank was incorporated on 30 May 1990 as Zenith
International Bank Limited, as a private limited
company, and was licensed to carry on the business of
banking in June 1990. The bank changed name to
Zenith Bank Plc on 20 May 2004, and its shares were
listed on the NSE on 21 October 2004. The group now
has operations not only in Nigeria, but also in Ghana,
the UK, Sierra Leone, the Gambia and a rep office in
South Africa. The group has a network of 315 branches.
• Driven by a reduction in the net provision charge and
a lower tax rate, Zenith saw attributable earnings
more than double in FY 10 to NGN 37.4bn compared
with the annualised FY 09 results.
• That earnings momentum was not sustained through
9M 11, however, as this time higher provisions as well
as cost pressures led to attributable earnings growth
of a still impressive 37.91% to NGN 42.5bn.
• The ‘rest of Africa’ operations continued to be a
positive contributor to the bottom line on a net basis.
• Zenith should have concluded any sales to AMCON by
31 st October 2011 in line with the target set by the
‘bad bank’. Its main exposure requiring to be purged
was to Zenon. Zenith participated in the NPL sale to
AMCON in H1 to the tune of NGN 37bn, for which the
bank received NGN 17bn in AMCON bonds, while NGN
35bn in write backs/recoveries was recorded. The
NPL ratio remained below 4% and is expected to
remain at current levels going forward.
• The group remains very liquid, with a relatively low
LDR. With the MPR rate having risen in in H2, we
expect Zenith to benefit through improved NIMs. The
LDR at 56.60% also provides a lot of room for risk
asset growth going forward.
• Using a DCF valuation, we arrive at a target price for
Zenith Bank of NGN 16.68, representing 45.7% upside
on its current share price of NGN 11.45. After GTB,
this is our second favourite pick in the sector. BUY.
Recommendation
BUY
Bloomberg Code
ZENITHBA:NL
Current Price (NGN) 11.5
Current Price (USc) 7.1
Target Price (NGN) 16.7
Target Price (USc) 10.3
Upside (%) 45.7
Liquidity
Market Cap (NGN m) 359 490
Shares (m) 31 396
Free Float (est. %) 85.5
Ave. daily vol ('000) - 1 yr. 32 304
Price Performance
Price, 12 months ago (NGN) 15.1
Change (%) (24.4)
Price, 6 months ago (NGN) 15.1
Change (%) (24.2)
Financials (NGN m) 31 Dec F2010 2011F 2012F
Loans & Advances 749 009 916 313 1 087 716
Net Interest Income (excl. Provisions) 91 546 120 006 146 916
Non-Interest Income 60 602 87 821 107 839
Attributable Earnings 37 330 55 776 69 238
EPS (kobo) 119.2 178.5 221.6
DPS (kobo) 85.0 89.3 110.8
NAV/Share (kobo) 1 158.0 1 283.8 1 450.2
Valuation Ratios Current 2011F 2012F
Earnings Yield* (%) 13.6 15.6 19.4
Dividend Yield (%) 7.4 7.8 9.7
PE* (x) 7.3 6.4 5.2
PBV (x) 0.9 0.9 0.8
RoaA (%) 2.1 2.6 2.8
RoaE (%) 10.6 14.6 16.1
Net Interest Margin (%) 5.9 6.0 6.3
Cost to Income Ratio (%) 64.3 64.2 62.3
* - trailing
Zenith Bank vs NSE ASI
1.5
1.4
1.3
1.2
1.1
1
0.9
0.8
0.7
0.6
0.5
17-Nov-10
17-Dec-10
17-Jan-11
17-Feb-11
17-Mar-11
17-Apr-11
17-May-11
17-Jun-11
17-Jul-11
17-Aug-11
17-Sep-11
17-Oct-11
17-Nov-11
Strengths
Weaknesses
Top tier bank
Somewhat conservative as shown by low LDR and high
Branch network
CAR, could sweat assets harder
IT focused
Zenon loan - should now be resolved via AM CON
Strong, liquid balance sheet
Focus on increasingly competitive top-end corporate space
Oppo rtunities
T hreats
M id to lower end of the market
M id-tier M &A activity to lead to increased competition
Room for growth in LDR to improve margins
with e.g. Zenith branch network falling in pecking order
Increase contribution from SSA businesses Increased regulatory risk due to cross border expansion
Zenith Bank
NSE ASI
33