Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/zenith-bank-plc" target="_blank" rel="noopener" data-smartkarma-citation="entities:27769:1">Zenith Bank PLC (ZENITHBA NL)</a> and United Bank of Africa are certainly worthy of attention. While the latter appeals on a Franchise Valuation (FV) of 6% and a PER of 2x, benign trends are more compelling at the former at an attractive valuation too.It is not so widespread to find a lender which reports a ROAA of 3.5% and a ROAE of 25.5% trading on a P/Book of 0.7x. Globally, a bank with such Profitability would be assigned an elevated FV rather than the current rating.Such stellar Profitability (with high margins) combines with robust Capitalisation, positive "underlying jaws", and strong Liquidity, given credit restraint and surging cheap retail funding. Fundamental momentum and value-quality attributes are highly positive as evidenced by a PH Score™ of 9.1.The main area of concern revolves around Asset Quality - as elsewhere. While seemingly under control, total impaired loans are well in excess of problem loans or NPLs. Hydrocarbons still have a high weighting in the credit (and restructured) portfolios. Loan Loss Provisions look rather modest, flattering the aforementioned Profitability while coverage of impaired assets has decreased to 90%. Charge-offs are extremely elevated.The evolution of digital banking at Zenith has been outstanding as elsewhere in Africa.Nigeria remains mired in well-documented political and economic problems. But life goes on and banks can perform well in seemingly abnormal situations. Restoring an agro presence remains a huge challenge as well as managing a fiscal imbroglio given absurdly low tax collection and unaccountable spending. The country discount though for such a profitable outfit is arguably too high given risks seem baked into valuation.

Zenith Bank PLC (ZENITHBA NL) and United Bank of Africa are certainly worthy of attention. While the latter appeals on a Franchise Valuation (FV) of 6% and a PER of 2x, benign trends are more compelling at the former at an attractive valuation too.It is not so widespread to find a lender which reports a ROAA of 3.5% and a ROAE of 25.5% trading on a P/Book of 0.7x. Globally, a bank with such Profitability would be assigned an elevated FV rather than the current rating.Such stellar Profitability (with high margins) combines with robust Capitalisation, positive "underlying jaws", and strong Liquidity, given credit restraint and surging cheap retail funding. Fundamental momentum and value-quality attributes are highly positive as evidenced by a PH Score™ of 9.1.The main area of concern revolves around Asset Quality - as elsewhere. While seemingly under control, total impaired loans are well in excess of problem loans or NPLs. Hydrocarbons still have a high weighting in the credit (and restructured) portfolios. Loan Loss Provisions look rather modest, flattering the aforementioned Profitability while coverage of impaired assets has decreased to 90%. Charge-offs are extremely elevated.The evolution of digital banking at Zenith has been outstanding as elsewhere in Africa.Nigeria remains mired in well-documented political and economic problems. But life goes on and banks can perform well in seemingly abnormal situations. Restoring an agro presence remains a huge challenge as well as managing a fiscal imbroglio given absurdly low tax collection and unaccountable spending. The country discount though for such a profitable outfit is arguably too high given risks seem baked into valuation.

Zenith Bank: Strong Fundamental Trends and Valuation Outweigh Post Code Concerns

Nigeria

Zenith Bank PLC is a commercial bank with offices located in several parts of Nigeria.  The Bank provides services to corporate, commercial and individual customers.

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Zenith Bank: Strong Fundamental Trends and Valuation Outweigh Post Code Concerns

Zenith Bank PLC (ZENITHBA NL) and United Bank of Africa are certainly worthy of attention. While the latter appeals on a Franchise Valuation (FV)...

Paul Hollingworth