Zenith Bank
This bank is one of the foremost banks in Nigeria. They raised money from the capital market by way of a public offer and rights issue that ended in January this year that was over 400% oversubscribed.
They released their third quarter results on the floor of the NSE recently, which analysts have said was quite impressive. They changed their year end from June to December, which is going to start this year. This means that they are going to declare an 18-month results as one year results at the end of the year. The offer they also floated has been listed on the floor for trading but I am not sure that it has really had any impact on their financials for the period ended March 2008. The change in year end and the additional listing of shares will make me work with a lot of assumption on my analysis of Zenith bank to compute its fair value. I know it is a bit tacky but it will go a long way in my personal determination of how valuable this bank really is for investors.
Their third quarter results revealed a turnover of N120.306 billion from N70.768 billion, which is a 70% increase and the profit before tax rose by 111% from N19.26 billion to N40.64 billion. This means that they have been able to work on their cost of sales to increase their gross margin. Their profit after tax also rose from N14.08 billion to N33.32 billion indicating a 137% increase. It is really a remarkable results for such a bank that does not seem to have so much grounds to cover again in Nigeria, compared with some other banks.
Based on this results I expect a conservative full year results of about N51.09 billion. The following assumptions were made. Since the results were based on a three quarters financials, I divided the PAT by three and then multiplied it by four to get a 12-month figure. The bank went to the market to raise money, which according to their prospectus is to effectively increase the impact of their retail banking services and information technology. These are medium to long term investments but banks have a way of using such money to make short term capital gains, hence I increased the 12-month figure by 15% assuming that they make an extra 5% for each of the remaining quarters.
With 16.74 billion shares in issue, the 12-month forward earning per share will come to 305K. Based on the current market price of N47.00 their price earning multiple comes to about 15.40x. This means that Zenith bank is quite cheap at the moment selling at 63.81% discount with a fair price of about N76.99.