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ZENITH BANK PLC :The premier case for focus singularity

ZENITHBANK’s strategic imagery retains an agnostic approach to corporate restructuring, seemingly staying immune to the timeless arguments for the HoldCo transition. Since divesting its array of non-banking enterprises, Nigeria’s most profitable Bank (annualised H1’22 PAT: N222.8 billion) has tirelessly guarded its indicative margins and market position by assembling a diversified suite of banking products across its presence markets. Whilst its corporate franchise remains in high confidence region, the Bank’s early embrace of digital channels for retail and SME segments has supported strong deposit growth (second only to ACCESSCORP), stabilised funding costs, and jolted transaction volumes.

More so, analysts note the Bank’s historical ability to attract top-tier credit, aiding the consistent value squeeze from a relatively modest gross loans-to-deposit ratio (5-year: 57.3%), compared to analysts corresponding coverage mean of 67.8%. Furthermore, the Bank’s loan profile seems positively geared by considerable FCY exposure, translating into bloated LCY values owing to sustained currency pressures across operating markets. Additionally, considering its unwavering preference for adequately collateralised upstream energy credit (averaging 18.1% of gross loans since FY’20), we discern supplementary comforts from still-elevated crude oil prices. Ultimately, in FY’23, we expect the convergence of these drivers to culminate in a strong risk-asset performance, even in the face of lingering macro uncertainties.

Analysts like the bank’s strong composition of non-interest revenue to interest income ratio compared to its Tier 1 peers (34.1% vs 28.8%, respectively). In analysts view, this ratio is driven by the continued scale in its retail segment and robust treasury play. To the first, analysts are encouraged by the material jump in retail PBT contribution to 19.0% in FY’21 from 9.0% in FY’17, which is partly reflected in the c.50.3% jump in e-business fees. To the latter, analysts note that the bank has consistently surprised with its trading gains, backed by a robust trading book and dynamic strategy. Specifically, management had guided that its treasury play would remain a key part of its earnings diversification strategy.

All in,analysts revise their 12-month target price to N30.46, implying a BUY rating and an exit PB of 0.68x (vs. 4-year average of 0.65x) for an FY’23 ROAE of 18.33%


Target Price:N30.46

Ref Price: N24.60


Market Data

ZENITHBANKMarket Cap (N’bn)772.35

Last close price (N)24.60

52-week high-low price (N)27.50/ 18.90

Avg 3M daily volume (mn)8.12

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