The current public offers and right issues announced recently by banks to raise fresh funds to boost capital base as demanded by the Central Bank of Nigeria are definitely paved with various challenges, setting them for failure. This is particularly so with the current hardship prompted by the nation’s economic ill-heath and bitter past experiences of the stock investors from similar exercises, to mention just a few .
Matthew Ashimolowo, a very highly respected and influencial pastor, confirmed this as he dropped a bombshell recently. “I would mention banks, there’s nothing they can do. I bought for 36 million Naira First Bank at 36 Naira per share, it fell to 12 Naira. I lost that .I went and borrowed 60 million Naira in 2005 or 2006 from Sterling Bank to buy Skye Bank shares, it fell from 14 Naira to 2.50 Naira; washed away. Sterling Bank showed up in our office with 4 policemen to come and collect their money. I had to look for that money within 2-3 months.The same Skye Bank who loaned me money when we were building a house, showed up in our church. Their risk manager came with about 10 staff to our service .I bought GTB for something like 18 Naira, GTB fell to 3.60 Naira…”
While all the above challenges are likely to make investors to be extremely cautious and consequently impinge on their success, analysts, however, believed some banks’ offers ,whether public or private, have the momentum and street credibilty to score a run . Apart from the speculation that their success is a forgone conclusion, Zenith Bank Plc offer , both public and right issues , among few others, are even rated for oversubscription by some analysts. Before we look into the reasons for this optimism on its offers , let’s see the details of its ongoing offers .
Details of the Bank’s Offers
In a significant move to meet the Central Bank minimum capital requirement of N500 billion, it had offered its ongoing hybrid rights and public offers at the bank’s lowest price range, locking in about 32 percent gain in potential immediate return for existing shareholders and new investors.
Details of the Hybrid Rights Issue and Public Offer, aimed at raising approximately N290 billion, will not only enable the bank to meet the CBN’s requirement but also provide additional working capital to support its expanding operations and investments in information technology infrastructure.
Currently, Zenith Bank’s issued and fully paid share capital stands at N15.698 billion, complemented by a share premium of N255.047 billion.
To meet the CBN’s new stipulation, the bank requires an additional N229.225 billion. The Hybrid offer includes a Rights Issue of 5.233 billion ordinary shares priced at N36 per share for existing shareholders, alongside a Public Offer of 2.767 billion ordinary shares available to the public at N36.50 each. The offer commenced on August 1, 2024, and is set to close on September 9, 2024. Dr. Adaora Umeoji, OON, Group Managing Director/CEO of Zenith Bank, this capital infusion will help meet regulatory requirements and enhance the bank’s information technology infrastructure.
What Drives the Offers
The current positive and optimistic disposition of the analysts towards Zenith Bank’ s offers may not be farfetched .The reputation of Zenith Bank’s brand ,excellence of its service delivery,product range and innovation are expected to boost the chances of its offers’ success as speculated by analysts. Zenith Bank has built a banner brand that predisposes customers to try its new products, secured access to critical channels around the globe, and has developed an internal capacity to quickly propagate new product and service innovations .All these , will, other things being equal, help it to capture the competitive high ground according to some analysts
Power Enviable Brand Position.
A. powerful global brand, fueled with esteem and customer affection, some analysts said could dramatically accelerate a new product’s take-off. The reason for this belief may not be far to seek .The goal of a banner brand is simple: to help customers transfer the goodwill that has been built up through positive experience with one of the company’s products to other products it offers or intends to offer. This is because a trusted brand is a “warrant” to customers that the new product or service will perform to a high standard. However , each new product or service introduction either reinforces or undermines the integrity of the banner brand
This is what Zenith Bank has been exploiti ng to drive its industry leadership Obviously, Zenith Bank as brand has what it takes to engender a greater predisposition for customers patronage among its rivals with strong attributes of its banner brand . Its potential for recognition drives its high level of awareness; its reputation unleashes confidence that it will live up to the claims; its strong affinity ,a feature that drives the extent to which a brand ,is an integral part of the customer’s sense of self is superb just as its domain attribute or the breadth of the brand’s potential catchment area in terms of plausible product scope is equally fantastic. However, behind these rich potentials are certain critical success factors.
Critical Success Factors Driving a Brand .
There are four main factors that could either reinforce or undermine the integrity of any banner brand and determine the reaction of investors to a particularly stock ,analyst told the Decisionmakers.Online . ”You have the fundamentals, figures. You also take into consideration the economic situation prevailing in the country which is the macro economic consideration. In this you look at the government polices viz –a –viz the particular product or the company” , declared an analyst . Another thing is the quality of the management of a company. The last consideration is hear- say. Zenith Bank has, indeed , exploited the above factors to create an enviable banner brand and this will definitely positively enhance the success of its ongoing public offer and rights issue.
Strong Fundamentals Behind The Brand
Fundamentals allow investors to look beyond short-term price fluctuations and focus on the underlying factors that drive a company’s operations and long-term performance. The main benefit of fundamental analysis is to help quantify the value of a company and its shares.
While its fundamentals are superb , the first factor that is expected to positively drive its offers is a clear and realistic valuation . Any company that plans to raise funds in the market needs a clear and realistic valuation to attract investors and avoid leaving money on the table . This is an estimated worth of its shares, based on various factors, such as its financial performance, growth potential, market size, competitive position, and industry trends,
Looking at its figures or fundamentals there is no doubt that Zenith Bank’s shares are not only undervalued but also present a promising opportunity for capital appreciation. Engaging in the bank’s upcoming capital-raising offer could yield significant capital gains for investors who recognise the potential upside. Zenith Bank’s strong financial performance adds to its appeal as an investment opportunity. The bank has consistently demonstrated resilience, with impressive profitability metrics and a solid track record.
Over the past five years, Zenith Bank’s share price has grown by approximately 57%, establishing itself as one of the most capitalised banks on the Nigerian Exchange Group (NGX) with a market capitalisation of N1.130 trillion. In 2023, the bank emerged as the most profitable listed bank on the NGX, reporting a pre-tax profit of N795.962 billion. Notably, in the first quarter of 2024, Zenith Bank achieved about 40% of its total pre-tax profit for 2023, indicating a strong trajectory.
Currently, Zenith Bank’s stock trades at a price-to-earnings (P/E) ratio of 1.30x—significantly lower than the banking sector average of 2.2x—suggesting it may be undervalued compared to its peers. Additionally, its price-to-book (P/B) ratio stands at 0.4, while its price-to-sales (P/S) ratio is 0.44, indicating a considerable discount relative to its book value and annual sales.
Financially, Zenith Bank reported a pre-tax profit of N795.962 billion in 2023, with a solid net interest income of N736.182 billion for the same year. However, concerns linger regarding its loan portfolio; loans and advances surged by 63% to N6.6 trillion, accompanied by a cost of risk increase of 128% to 7.3%.
For investors, Zenith Bank’s Hybrid Rights Issue and Public Offer represent an enticing opportunity to acquire shares at competitive prices. With strong historical performance and favourable valuation metrics, investors seeking stability and potential growth may find this offer particularly appealing.
A review of the trading history of Zenith Bank at the stock market indicated that the bank’s shares had recently traded as high as N47.35 per share, a price range that market pundits believe is a fair price for the stock. This recent price range implies a discount of about 32% locked into the ongoing hybrid rights and public offers.
With earnings per share of N21.55 for the 2023 business year, Zenith Bank’s offers carry an earnings yield of about 60%, the most attractive value addition among peers and competing offers. This simply means that beyond its industry-leading dividend payout, investors in Zenith Bank have significant value creation in the investment that can sustain above-average, long-term returns.
Analysts believe Zenith Bank has entered a new phase of phenomenal growth. Annualised, the first quarter 2024 performance indicates that the bank’s net profit could surpass a trillion, with potential earnings per share that almost covers the cost of buying into the ongoing offers. Such fundamental performance usually triggers a rally for a stock, underscoring the belief by investment experts that the bank could set a new all-time high within the next few months.
High Quality Management Behind the Brand
Another factor driving its strong brand and consequently its fundamentals analyzed above is its superior management quality. From obscurity in the early 90s , Zenith with capability to identify faster than competitors the heart of what the stakeholders particularly valued in the future is its key to industry leadership . To gain the access to the banking industry leadership the first thing the leadership of Zenith Bank did was to change the rule of the game to overtake some incumbents controlling the market share and position as well as its profitability.
To achieve this goal , the bank knew it needed not only to imagine the future but to create a new future ahead of the incumbents to emerge the industry leader .No doubt , about it , a companies that create the future are companies that are constantly searching for ways to apply their competencies in novel ways as the link between technology and customers is not just currently articulated needs. The goal is to be broadly benefits driven —constantly searching for ,investing in ,and mastering the technology that will bring unanticipated to human kind .
Achieving the above are ,no doubt, very herculean. To create the future a company must change in some fundamental way the rules of engagement in a long-standing industry as Charles Schwab did in the brokerage and mutual fund businesses, redraw the boundaries between industries as Time Warner, Electronic Arts, and other companies are attempting to do in the field of “edutainment”, and/or create entirely new industries (as Apple did in personal computers). A capacity to invent new industries and reinvent old ones is a prerequisite for getting to the future first and a precondition for staying out in front.
The above have become a reality with this bank’s leadership capability. . Zenith, a bank actively competing for the future, gained industry leadership by changing the rules of the game as it raced to the future ahead of its competitors. Zenith Bank competed for intellectual leadership— developing industry foresight and crafting strategic architecture and won it. At this stage, it conceived an alternate industry structure or a new opportunity arena with a goal to out-think and out-imagine competitors. At another stage, it had to shape and foreshorten the migration paths to actively shape the emergence of the future industry structure to its own advantage. While those two battles are pre-market , at market level ,the bank has equally been able to gain tremendous market share and position to emerge as the most profitable bank in Nigeria in the last few decades.
This bank has ,no doubt, captured the competitive high ground with its traditional ambition of maximizing the share of the industry revenues and a key goal of maximizing the ratio of its learning over its investment.
How did it make this difference? Although process reengineering dominates the top management agenda in many companies, to gain the industry , Zenith Bank leadership left nobody in doubt on its capability of “re engineering” its industry. Its logic is simple: To extend leadership a company must eventually reinvent leadership, to reinvent leadership it must ultimately reinvent its industry, and to reinvent its industry it must ultimately regenerate its strategy.
Strategic Capabilities Driving its Enviable Brand Position.
Its Competitiveness
Zenith Bank is an example of a company that overcame seemingly insuperable resource handicaps and built positions of global leadership. First , it had to grow its resources both financially and physically . Today, it is one of the biggest banks However, the management did not go for bigness ordinarily. Knowing that just as bigness without stretch and leverage is obesity, smallness without stretch and leverage is impotence, its weapons are foresight, stretch, and leverage provide the energy and rationale for proactive advantage building and industry re-engineering.
The reason for this may not be far to seek. S.ize is an advantage only when there’s a stretching aspiration that engenders great creativity in the use of the firm’s resource endowment.
ITS NEW STRATEGIC PARADIGM
Another factor that continues to drive its strong brand is its new strategic paradigm, a view of strategy that recognizes that a firm must unlearn much of its past before it can find the future and recognizes it is not enough to optimally position a company within existing markets. However, the challenge of this for many players is to pierce the fog of uncertainty and develop great foresight into the whereabouts of tomorrow’s markets.
Also ,its new view of strategy also recognizes the need for more than an incrementalist, annual planning rain dance; the bank knows what is needed is a strategic architecture that provides a blueprint for building the competencies needed to dominate future markets . Other aspects of its new strategic paradigm emphasized a view that is less concerned with ensuring a tight fit between goals and resources and is more concerned with creating stretch goals that challenge employees to accomplish the seemingly impossible ; a view of strategy as more than the allocation of scarce resources across competing projects; a quest to overcome resource constraints through a creative and unending pursuit of better resource leverage ; not only compete within the boundaries of existing industries, they compete to shape the structure of future industries ; a view of strategy that recognizes that competition for core competence leadership precedes competition for product leadership, and that conceives of the corporation as a portfolio of competencies as well as a portfolio of businesses..
New Organizational paradigm
The bank also believes thinking differently about organizations could not be divorced from the need to think differently about strategy analyzed above .This is because mobilizing employees at all levels around a strategic intent , leveraging resources across organizational boundaries ,finding and exploiting white space opportunities , redeploying core competencies, consistently amazing customers , exploiting new competitive space through expeditionary marketing ,and building banner brands all require new ways of thinking about the organization .
Zenith Bank has demonstrated this with its less centralized ,bureaucratic control oriented organizational structure which is responsible for its relatively better efficient service delivery. Its enlightened collective rather than absolute decentralization or a heavy handed corporate strategy is informed by the above belief.
.The reason for this is informed by the fact that bureaucracy and rigid sense of hierarchy kill initiatives and creativity In bureaucratic , hierarchical organisation employees are often like sheep . they mill around but no sense of purpose
Also its culture of more cooperative and less competitive posture among peers is palpable from its drive for creating a boundary less organization to tap some cross unit opportunities that are just too attractive to be sacrificed on the altar of absolute unit autonomy when there is individual entrepreneurship.
The bank does not only empower its employees but with a sense of shared direction that averts anarchy because just as bureaucracy can strangle initiative and progress ,so too large number of empowered but unaligned individuals who are working at cross purposes This moreso because as empowerment involves obligation and opportunity to contribute to a specific end .
