Zenith Bank Plc H1 2018 Results – Lower Impairment Charges Buoy Profitability


Cardinalstone Research

Gross earnings shrank by 15.3% YoY to N322.2 billion, within our estimate of N335.1 billion (-3.8% deviation). In contrast, after tax profit climbed by 8.5% YoY to N81.7 billion in H1’18, though this was lower than our N90.3 billion (-9.5% deviation). On a quarterly basis, gross earnings also slipped by 11.0% QoQ. This, in addition to much higher effective tax rate (Q2’18 – 35.0%; Q1’18 – 12.8%), saw profit after taxes for the quarter plunge by 26.4% QoQ to N34.7 billion.

ZENITHBANK proposed an interim dividend of N0.30 per share which translates to a dividend yield of 1.3% based on the last close price.

Other highlights:

Interest income plummeted during the quarter (-41.1% QoQ and -41.2% YoY) to N84.8 billion. This was largely impacted by a significant decline (-78.6% QoQ and -68.4% YoY) in income from investment securities to N13.6 billion. Similarly, income from loans and advances fell by 10.0% QoQ and 30.5% YoY during the quarter.
In contrast, ZENITHBANK recorded N35.1 billion in trading gains (compared to N1.7 billion in Q1’18), propelled by the bank’s treasury bills trading income. Similarly, FX gains rose by 23.4% QoQ to N4.3 billion. These, in addition to a 24.2% QoQ increase in fees and commissions, saw non-interest income surge by 152.0% QoQ to N67.0 billion.
Loan loss provisions improved further during the quarter, moderating by 17.0% QoQ and 87.2% YoY to N4.4 billion. However, cost of risk was flat at 0.09%. Operating expenses inched higher during the quarter by 2.4%.
Net loans and net assets declined by 10.8% and 12.4% to N1.9 trillion and N719.5 billion respectively. Similarly, total assets declined by 1.3% to N5.3 trillion during the quarter.
Analyst take:

ZENITHBANK recorded lower gross earnings in H1’18, as the impact of the lower interest rate environment came to bear on interest income. Despite this, profit before taxes improved by 16.5% as better treasury and liquidity management supported earnings. We are also encouraged by the bank’s asset quality as impairments charges fell during the period. Based on our last review, our price target for the firm is N35.23 (BUY


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