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  #2021 (permalink)  
Old 7th March 2017, 09:21 AM
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Default Re: Zenith Bank

Good afternoon,

Zenith Bank of Nigeria Plc held its earnings conference call to explain its FY'16 results. We retain our target price (TP) to N20.29 and maintain our BUY rating on the counter. Kindly see below the key points from the conference call.

Key Conference Call Take-aways

Implementation of IFRS 9 may substantially raise impairments
The CBN on Dec 23, 2016 issued a guidance note, directing banks to begin preparation for the full implementation of the International Financial Reporting Standard (IFRS) 9 - Financial Instruments. According to the CBN guidance, banks are required to put in place all the necessary arrangements, processes and systems to facilitate easy implementation before April 30, 2017. Under the old rules, loan loss provisions are calculated using an incurred loss method i.e. provision for losses on loans were created on the basis of events which have taken place in the past. IFRS 9 takes a more risk-based, forward-looking approach - provisioning for losses on loans and investments will be based on projected or expected losses. The move from an 'incurred' to an 'expected' loss approach means that banks need to apply greater judgment in forecasting the future, which we believe brings with it greater uncertainty, subjectivity and volatility. The adoption of IFRS 9 will likely result in an increase in the current level of loan loss provisions made by banks, which in turn will have an impact on profitability and capital adequacy.

Management seeks shareholders' approval to raise capital

Management disclosed that it would seek shareholders' approval to raise 100 billion naira (US$318 million) via a combination of share, bond sale or global depository receipts. Whilst management provided no firm reason for raising capital, we think that the bank in the interest of prudency, may want to hedge its capital position from any adverse impact of the implementation of IFRS 9 or a further devaluation of the Naira. The bank also said it would seek approval to increase its authorized share capital to N40 billion (US$ 131.2 million) from N20 billion (US$65.6 million) at the shareholders' meeting on March 22, 2017.

Bank increases provision and NPL recognition on power sector loans

The contribution of non-performing loans (NPLs) in the power sector to total NPL rose to 43% in FY'16 from 3.4% as at 9M'16 and 1.26% in FY'15. Management stated that additional provision was made for the power sector in anticipation of the impact of the delayed implementation of the new tariff system on cash flow. Nonetheless, management remained upbeat on the loans stating that its four obligors are amongst the top power distribution companies in the country, and that the provisions were for two out of the four obligors. Total exposure to the power sector accounts for 4.6% of total loans (N108.6 billion), and 28.3% (N30.7 billion) of this exposure has been classified as non-performing; while just 55% (N16.9 billion) of the impaired loans have been fully provided for.

Short term business outlook

During the conference call, management refrained from given any projections for 2017 performance. We believe management is being cautious given the highly volatile macroeconomic environment. In H1'17, we don't expect any material changes to our projections. We believe the apathy for credit growth will remain in the interim. Therefore, we expect the bank to continue to take advantage of high yielding fixed income securities. This view was buttressed by management, as it expressed preference to invest in government securities yielding as high as 23% over generating a risk credit asset at the same interest rate. On FX revaluation gains, the interbank FX rate has stabilized around N305 since Q4'16; therefore, we do not expect any material changes to this current rate at least in Q1. On this premise, we don't expect any material FX revaluation gains in Q1'17.

Valuation

We have retained our target price of N20.29 on Zenith bank as there have been no material changes to our fundamental assumptions concerning the bank. Our current target price (N20.29) therefore presents a 39.9% upside to current price of N14.50. Zenith bank currently trades at a P/B of 0.6x.

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  #2022 (permalink)  
Old 9th March 2017, 09:35 AM
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Default Re: Zenith Bank

@Waves

Isn't EKO disco also Ayeni?
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  #2023 (permalink)  
Old 14th March 2017, 01:40 PM
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Default Re: Zenith Bank

Why Zenith Bank's 12% dividend yield did not move investors. Is it too little too late?

Details available at: Dialectic Africa Analyst
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  #2024 (permalink)  
Old 23rd March 2017, 05:47 AM
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Default Re: Zenith Bank

Breaking !!!! Why did zenith bank suspend the100 billion capital rasing exercise, how would they get capital to finance loan and project. without raising this capital am sure the share price of zenith would tank seriously
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