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Analysts sustain out-performance rating on Zenith Bank’s Q2

The second quarter 2017 unaudited result of Zenith Bank Plc has continued to generate positive reactions from the capital market, as cross section of analysts sustain out-performance rating on the first tier bank.

The bank, which, as at the close of business last Monday, recorded large volume transaction on its shares justified investor’s commitment to taking profit both from price growth and corporate action, as the bank is currently trading cum dividend.

Following the release of Zenith bank’s second quarter result, the board of directors proposed 25 kobo interim dividend. The proposal, Daily Times gathered, is driving more activities on the bank’s equities. While some investors are selling to take price profit on price growth, others have sustaining mopping up the bank’s shares to reap from the 25 kobo interim dividend.

A recent report by FBNQuest, among major investment analysts, sustained out-performance rating on the bank, following its strong Q2 results which showed positive surprise due to strong y/y growth in non-interest income, which more than offset a subdued performance in funding income and negative surprises in loan loss provisions and operating expenses.

“Nevertheless, we have raised our 2017E and 2018E EPS forecasts by an average of 17 per cent to reflect the positive surprise in non-interest income and a stronger H2 outlook for the same” the report said.

According to analysts report, hence Zenith Bank shares have gained 59 per cent ytd. Higher than ASI which has recorded 41 per cent growth, its new price target of N29.1 implies additional upside potential of 24 per cent. “As such, we retain our Outperform rating on the shares” noted FBNQuest.

Zenith bank’s Q2 result rated to have outperformed analysts forecast, showed that a significant y/y growth in fx trading income driven by marked-to-market gains on swaps was the key driver behind the bank’s solid growth in non-interest income.

The results showed that PBT grew by a remarkable 120 per cent y/y to N48bn. The strong PBT growth was mainly driven by stellar growth of 389 per cent y/y to N88.5bn on the non-interest income line. Growth on this line was buttressed by a strong performance in fx trading income which grew to N46bn from an fx loss in H1 2016.In contrast, funding income came in flat y/y.

The strong revenue contribution was strong enough to completely offset increases of 196% y/y and 39% in loan loss provision and opex respectively. Further down the P&L, PAT declined by 19% y/y to N31.4bn mainly because of a negative result of –N6.3bn in other comprehensive income line (OCI) compared with a strong gain of N30.2bn in Q2 2016 on the same line.

The bank’s Q2 result showed that weakness in funding income was due to raised funding costs linked to high yield on government securities.

According to the result, impairments were significantly higher in Q2, caused by exposure to telecoms, chiefly Etisalat, now 9mobile; and aviation firm of which the identity of the organization was not disclosed.

Bonny Amadi

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