Zenith Bank

[crtide]

Originally Posted by Avocado

This is a good strategy. Stocks will, generally, outpoerform the returns on a savings account.



Japaul offer closed, so is FCMB; and, on the floor, Japaul at N8 is quite steep. You're right about the oversubscription level, and the Offer-craze with banking stocks. This Article "Public Offer Spotlight – Zenithbank Offer; “Shine Your Eye” recommends an interesting strategy.


Again, reasonably good. But do you imply then that FBN is returning money with interest??
.

I understand the house of Reps is looking into it and that FBN is reportedly ready to pay interest at 6-7% but the reps are pressing for 10%. We will see how it pans out

[Apache]

Hi Guys, See analysis from the Nigerian securities website. I hope no copyright laws have been breached by this action. i have edited this bcos it was too long





Public Offer Spotlight – Zenithbank Offer; “Shine Your Eye”

Posted on 12/24/07



Summary:

NigerianSecurities(NS) remains constructive on the long term fundamentals of Zenith Bank (ZNBK) but advises investors to be cautious in their investment strategy. Given the likely oversubscription of the offer, we advise investors to take positions in comparable banking stocks trading on the secondary market. Alternatively, we think existing ZNBK shareholders should invest in the Rights offer using a margin strategy, while investors in the public offer should implement a pair trade strategy.



Zenith recently launched its third public offer in three years with a goal to rake in N130 billion. The bank is pricing 1.763 million public offer shares at N38.90 and 1.654 million rights shares at N36.90. The share sale which commenced on Thursday December 6 is expected to close on January 17, 2008. The stated goal of the public offer is to finance infrastructure projects (50%), Incremental working capital (40%), expansion of branch network (6%) and Information & technology upgrade (4%). While we continue to see strong fundamental value in Zenith bank, we believe certain technical aspects of the public offer as stated in the offer prospectus, raises cause for concern especially for retail investors. We present below our views on the offer.



Investment Positives:

· The rights and public offers are priced at modest discounts of 20% and 16% to the current stock price of N46.09.

· From a valuation standpoint, the offer price appears to be cheap. For fiscal year (FY) 2008, management projects a profit after tax (PAT) of 28.9 billion and earnings per share (EPS) of N1.92 which imply a forward PE ratio of 20x. This compares favorably with the industry, which we currently estimate to be trading at 26.79x (times) FY 2008 earnings. Although NS expects ZNBK to gross over N31 billion in PAT for FYE 2008 rather than management’s estimate of 28.9 billion, we believe the positive impact of a higher than expected PAT on EPS, would be largely offset by a higher than expected share outstanding resulting from the likely oversubscription of the offer; leaving the EPS at roughly the same as management’s estimate of N1.92. Please see our previous article on ZNBK (posted on 04-11-07) for our valuation rationale.

· Sound management team led by Jim Ovia and a strong history of profitability, lending conservatism and operational efficiency. NS had the opportunity of reviewing a Standard & Poors (S&P) credit report on Zenith, released on November 22, 2007. In the report, S&P alluded to the robust risk culture, IT integration, profitability and balance sheet liquidity prevalent at ZNBK. We agree with this assertion by one of the foremost global rating agencies, and would add that the company’s consistent non performing loan (NPL) ratio of less than 2% is a testament to the professionalism and conservatism of management.

· Increasingly diversified business model. Zenith continues to build a full service financial network to diversify and stabilize its income stream. Although, Zenith is approaching this diversification strategy at a slower pace than some of its peers (as highlighted in the S&P report), we believe such a model would eventually become of immense value during cyclical downturns. We note that Zenith has 10 subsidiaries including Zenith Registrars, Zenith Securities (Brokerage & Asset Management), Zenith Capital (Investment Bank) and Zenith Medicare (Health Management Organization). In our opinion, the company’s stock price should eventually command a premium as these relatively new subsidiaries ramp up profitability and contribute significantly to the holding company’s consolidated earnings.

· Strong long term growth prospects. We believe ZNBK’s long term growth prospects (and the banking industry in general), are fairly strong and supported by; (1) the increased financing requirements of the oil industry, given government recent pronouncements on Joint Venture (JV) funding; (2) significant infrastructure financing requirements; (3) the expected growth of the retail banking segment and (4) the increased opportunities in the insurance sector, on the back of recent government policies on oil and gas local content and employee personal accident insurance. We note that ZNBK, with its business diversification strategy and branch network is well positioned to capture a significant portion of the incremental profits expected to accrue from these new government policies and economic trends. Largely reflecting the impact of ZNBK’s diversification strategy and its long term growth potential, is the company’s recently released first quarter 2008 results which show an increase of 70% in PAT over the comparable period in 2007.

· We believe that the absence of a GDR offering is a strength given the continued devaluation of the USD (Please see our article – Are GDR offerings really beneficial to investors).



Investment Negatives:

· Potential inadequate allocation to public offer subscribers. We believe the public offer will be oversubscribed given the strong brand equity of Zenith, its financial performance over the years, and the fact that a maximum of 40% of the offer has been preferentially allotted to staff and customers. While this should be an investment positive, recent experience has shown that issuing houses usually hold on to investors’ un-allocated funds for a long period, thereby denying such investors of the opportunity of earning decent returns on their investments beyond paltry interest income, if any. In Zenith’s case, unallocated funds would not be returned until 14/03/07, according to the prospectus. If we allow for 2 - 4 weeks of processing time, we estimate that investors would not receive their unallocated funds until mid April; a full four months after the close of the offer.

In conclusion, although Zenith’s long term growth prospects remain very solid in our opinion, we believe the structure of the current public offer as stated in the prospectus, necessitates a proactive approach if investors are to achieve above market returns in the short term. Given the likely over-subscription of the offer, we believe a pair trade strategy as described above, buying ZNBK on the secondary market at the current price of N46.09 (if available), or simply buying other bank shares in the secondary market, would be more advantageous to investors looking to commit significant amounts of capital.

[crtide]

This is more or less the strategy I summarised earlier. Why would I want to keep my money with some issuing house for 4 months at 6% pa when the likes of AP and LASACO have almost done 100% in less than 2 months?

[a.i.onyeahialam]

Please where can one get the Zenith bank right issue form for this present PO ?

[chidiohaz]

Com'on guys, I think for any company coming out for public funding has objectives which are all detailed in their prospectus for reasons in seeking these funds.

We should concern ourselves with the reasons and compare them if they are all the same then we can be raising eyebrows. Zenith might have gotten its hands in one project or the other and needed more fund to executve them less they would be brandished as not being a capable bank.

So we check the prospectus of the 1st PO and then this 2nd PO and compare the reasons for them coming again and again, if it is logical which I believe the Commission Authorities has already done for us before they wend on TS and then to the Public to seek these finances.

So let's not get involved in what we don't have knowledge of or having scanty information about.

[crtide]

Just like it was pointed out earlier the more money banks have the more projects they can finance. Its a competitive environment, there are lots of emerging oppurtunities owing to the favourable government initiatives and legislation. Any organisation that does not position itself to take advantage of it will lag. It there is an opportunity, why not take it. You have to be dynamic and be ready to adapt to a changing environment to maintain or move ahead of competition. In the past these banks go overseas to open accounts and get credits to fund projects, now the opportunity presents itself locally. It is a win win situation. As long as one reviews the prospectus and one is convinced that the allocation of the raised money will impact on the bottom line of the coy. Do not forget that the regulatory authorities scrutinise these things too

[panasharp]

Originally Posted by Ahaah

"Zenith Bank Slashes Salary Just Before Xmas". What message does this news sends to the investing public?


Zenith Bank Slashes Staff Salaries Just Before Christmas - Nairaland

No Message!

Did it make headlines when Zenith increased salary by about 100% and offered mortgage loans to its staff? Other banks groaned because they could not compete.

Rather investors should be happy, hopefully management will push the savings in SG&A cost to the bottomline.

[panasharp]

The time line by the NigerianSecurities article is very generous. In reality those time line have not been honored. UBA offer closed sometimes in May and I just received my certificate two weeks ago. Oceanic and FBN offers closed in June-July timeframe, all certificates are yet to be received.

If we use the time line; participants receive certificates 4 months after offer closes, then the certificate have to be deposited with CSCS for verification before they can be traded. I understand verification takes 1 or 2 months. So conservatively, one is looking at about 5-6 months at best after close before getting the opportunity to trade with the shares.

If your objective as an investor is longterm investment then I will buy the public offer or right issue and just wait to receive my certificate. However, if ones intent is short-term or trading, PO route is not that appealing. Good thing though is the promise that offer participants will partake in the June 2008 year end dividend.

All of this paper transactions is good if the offers are meant only to attract investors residing in Nigeria, however when you have foreign investors who have other investment opportunities, locking up their funds for 6 months is not particularly a good strategy. To cap it off, none of the companies have succeeded in allotting public offer shares electronically through CSCS accounts. We will see if Dangote Flour will blaze the trail.

Bottom line, why do we have to accept the ineptitude or the lackadaisical attitude of the regulators and the companies coming to the public to raise funds all in the name of "oh! we just started we will get there some day". We should hold them accountable to a higher stand or at best what they published in their prospectus.

Personal approach to Zenith offer
Longterm investment account - buy through the right issue and public offer.

Trading Account - buy on the secondary market

Happy New Year
Happy Investing in 2008.

Enjoy!

[chidiohaz]

I quite agree with you points ctrde. And again most of these banks are investing in some other capitalistic projects overseas

[chidiohaz]

Please where are the experts??? Help me to decipher this bugging problem:

Before my Dunlop and Livestock Stocks where looking down and I was waiting for them to appreciate a little so that I can sell them to purchase Zenith Bank PO. Today, both Dunlop and Livestock Stocks are beginning to look up and I am now in dilemma!

Despite the appreciations on both Dunlop and Livestock, do you still advise me to sell them both and buy Zenith PO???? I have till Monday 7th January, 2008 to make this decision. Please help ooooo (I need detailed financial advise on what to do) Amateurs! please keep off!!!!

[Taipan]

Originally Posted by chidiohaz

... Amateurs! please keep off!!!!

Chidiohaz, I dont think that's a very nice thing to say. Some people might take it as arrogant. Or should we take it as just a joke?

[knightofdelta]

Originally Posted by Taipan

Chidiohaz, I dont think that's a very nice thing to say. Some people might take it as arrogant. Or should we take it as just a joke?

Be careful Chidiohaz!

[chymex]

@ chidiohaz,

You have spoilt your case by your last statement cos it's only the "Amateurs" like me that will respond to your question.

And here is my advise; since Livestock and Dunlop are currently looking up, you should buy more of them to cash in on the upward swing at this time. After the harvest, you can then cash out your profit and buy the next Zenith PO (after the current one) which should be about end of 2008 (sure they will traditionally come back). Better still, buy Zenith on the Floor after the harvest.

Anyways, I have just asked that my LIVESTOCK be sold as I would like to plug it in to insurance stocks now as I see that as the fastest way to recoupe my losses in LIVESTOCK. - Bad news ??

[chidiohaz]

Originally Posted by chymex

Anyways, I have just asked that my LIVESTOCK be sold as I would like to plug it in to insurance stocks now as I see that as the fastest way to recoupe my losses in LIVESTOCK. - Bad news ??

Guys, please nevermind my statement about (Amatuers!), apologies all the way!!!! It's not intended to be insultive nor it being a joke, I am only expressing the state of my mind and attaching seriousness to it as time is not on my side to take this decision.

However, I thank you Chymex for your piece of advice, but I got more confused when you ended it up by saying that you are also intending to sell your Livestock shares to plunge into the Insurance stocks! Where does your advise now leave me???????????????

[chymex]

That's why I'm an Amateur and I made it clear from day one. However there might be some sense in my madness.

Paragraph 2 was meant to be a joke !!!

However the bottomline is this; it mustn't be Zenith cos they might return your money and your losses will mount. You should consider looking at the Insurance to acheive the same thing you want achieve with Zenith.