Zenith Bank Q1 2017 results: first reaction

Zenith Bank Q1 2017 results: first reaction

Event: Zenith Bank reports Q1 2017 results
Implications: Consensus earnings forecast likely to move up
Positives: Strong revenue growth, and ahead of our expectations
Negatives: Loan loss provisions (in particular) and opex growth surprised negatively

Zenith Bank’s Q1 2017 results which have just been released showed strong double-digit growth in PBT (38% y/y) to N44bn and PAT (46% y/y) to N39bn. Both revenue lines contributed to the strong results: funding income grew by 21% y/y to N71bn while non-interest income was up 94% y/y to N30bn. The strong revenue contributions were material enough to more than offset a sizeable increase in loan loss provisions (+206% y/y) and, to a lesser extent, opex growth of 24% y/y. The growth in non-interest income stood out because Zenith’s trading income recovered from a loss of –N1.9bn in Q1 2016 to a healthy positive result of N7bn in Q1 2017. Fees and commissions were also up strongly by a similar magnitude in naira terms. Compared with its Q4 2016 results, PBT grew by double-digits too, by 25% q/q and was partly helped by a -25% q/q reduction in loan loss provisions. The PAT improved significantly (by 341% q/q) because the Q4 results had been weighed down by a marked negative result on the other comprehensive income line (-N21bn).

Relative to our forecasts, the results were ahead of expectations. Both revenue lines beat – funding income by 22% and non-interest income by 62%, leading to a positive surprise of 31% on the pre-provisions profit line. Although loan loss provisions were double our forecast and opex also came in 13% higher than we were modelling, the better-than-expected revenues more than compensated, leading to PBT beating our forecast by 49%. PAT was 57% higher than we had modelled because of a positive result on the other comprehensive income line (N1.5bn); we had forecasted zero.

Zenith shares are up 1.3% ytd. Though better than the ASI’s -4.4%, the shares have struggled relative to other tier 1 banks. We expect these results to provide some boost to the shares over the coming weeks. We also expect consensus 2017 PBT estimate of N146bn to move up.

Our estimates are under review. We rate Zenith shares Outperform.

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