Report

ZENITH BANK PLC Q1'18 - Earnings beat despite marked deviations

ZENITHBANK released its Q1’18 result, posting strong y/y performance as PAT rose 26% y/y to ₦47.1 billion. Although Gross Earnings (₦169 billion) came in lower than our ₦179 billion estimate (following weaker than expected Non-Interest Income), bottom line was 10% better than our ₦42.9 billion estimate as notable deviations across key line items ensured earnings beat despite the top line miss. Following the implementation of IFRS 9, ZENITHBANK reported a loan loss expense of ₦4.6 billion vs. our ₦21.0 billion estimate and the ₦51.2 billion recorded in Q4’17. We highlight that the bank took a one-time impairment charge of ₦138 billion on its equity in line with the IFRS 9 guideline. In all, Operating Income rose 28% y/y to ₦118 billion – ahead of our ₦111 billion forecast. With Operating Expense also coming in higher than we had estimated at ₦63.9 billion (Vetiva: ₦61.8 billion), PBT rose 22% y/y to ₦54.0 billion vs. our ₦49.1 billion estimate. Overall, with an effective tax rate of 13% (in line with our estimate), PAT came in at ₦47.1 billion.

We have updated our model and revised our estimates to reflect the earnings deviation in Q1 numbers. Particularly, we cut our Non-Interest Income forecast to ₦136 billion (Previous: ₦226 billion) – in line with Q1’18 trend. Also, we revise our loan growth forecast lower to 0% (Previous: 10%) following the significant write-offs due to the implementation of IFRS 9 (loan book down 16% in Q1’18). Despite this, our Interest income forecast is raised to ₦515 billion (Previous: ₦491 billion) – supported by the decent performance in Q1’18. Overall, we cut our Gross Earnings estimate to ₦651 billion (Previous: ₦717 billion). With an Operating Expense of ₦236 billion – translating to a cost to income ratio of 55%, we estimate a PAT of ₦182 billion for FY’18. Despite the upward revision to our estimates across most line items, we lower our Target Price to ₦34.22 (Previous: ₦38.11).

Underlying
Zenith Bank PLC

Provider
Vetiva Capital Management
Vetiva Capital Management

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