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ZENITH BANK PLC 9M'17 - Marked deviations, earnings trump estimates

Marked deviations, earnings trump estimates                                                                 

ZENITHBANK released its 9M’17 result, posting significantly better than expected bottom line performance despite weaker than estimated top line. Whilst the bank had recorded impressive PAT of ₦37 billion in each of the two earlier quarters, Q3’17 performance came in much better at ₦54 billion – taking 9M’17 PAT to ₦129 billion and beating our ₦108 billion estimate. Particularly, we highlight marked variation from our estimates across three key line items, as Q3’17 performance deviated from the trend observed in earlier quarters.                                                                           

Importantly, amidst improving macro environment, NPL ratio moderated 10bps q/q to 4.2% with ZENITHBANK reporting a loan loss provision of ₦47.0 billion – better than our ₦49.8 billion expectation. Overall, PAT from the 9M period came in at ₦129 billion (already matching the FY’16 performance) – translating to an EPS of ₦4.12 (annualized: ₦5.49).                                                                

We have revised our model to reflect the deviations across a few line items. In line with cautious loan growth stance (ytd credit growth: -6%), we cut our growth forecast to -4% (Previous: 2%) - translating to a mild 2% q/q growth in Q4’17. Consequently, we revise our Interest Income estimate lower to ₦469 billion (Previous: ₦535 billion) to reflect the weaker than expected loan portfolio growth and lower yield on asset observed in Q3’17. Similarly, we cut our Interest Expense estimate to ₦203 billion (Previous: ₦245 billion) following the moderation in funding cost. With this, we maintain our Net Interest Margin estimate at 7.3% for FY’17 (9M’17: 7.2%). Our revised Operating Expense estimate of ₦217 billion (Previous: ₦254 billion) translates to a cost to income ratio of 57%.                                                                            

Zenith Bank PLC (ZENITHBANK) is Nigeria’s second largest lender. The bank offers its clients wide range of corporate, investment, business and personal banking products and solutions across 500+ branches, predominantly in Nigeria, with subsidiaries in the UK, Ghana, Sierra Leone and Gambia, as well as representative offices in South Africa and China.