Zenith Bank Plc Q1 2022-Loan Growth Buoys Performance
- Gross earnings rose 21.7% y/y to ₦191.5bn (close to our expectation at about 24% of our FY estimates. This rode on the wheels of increased interest and non-interest income. Interest income up 24.9% to ₦126.4bn as income from loans spiked 35.7% to ₦87.8bn following the 25% y/y expansion in customer loans to ₦3.6tn. Also, Income from government bonds supported interest income with a 21.5% increase to ₦26.7bn, reflecting gains drawn from the domestic bonds market.
- Interest expense advanced 43.5% to ₦25.8bn reeling from an 83% surge in interest on deposits, as the lender posted a 27.8% increase in total customer deposits. Annualized cost of funds rose 20bps to 1.3% as seen across peer, for which we suspect higher deposit rates. Consequently, net interest income gained 20.9% to ₦100.5bn in Q122. On annualized basis, Net Interest Margin ticked 5bps higher to 4.1%.
- Overall, profitability improved with PBT and PAT up 11.4% and 9.7% to ₦68bn and ₦58bn, respectively, both falling shy of our estimate by 22%. Efficiency ratios, however, waned slightly as RoE and RoA declined to 2.3% and 17.5% respectively from 2.4% and 19.4% in the period.
- We see loan growth boosting Interest Income. Alongside it is the expected growth in income from investment securities. Non-Interest Revenue should maintain current trajectory and post sustained accretion to topline. We remain confident of Zenith’s ability to weather the protracted regulatory and market concerns. In addition, we have an estimated 1-year Target Price of ₦29.82, a 24.3% upside from its current price of ₦24.00. In this light, we rate the stock a STRONG BUY
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