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.
Zenith shares Outperform.