Focus for the week: Zenith Bank H1’24 Earnings – Trading Income to strengthen FY’24 performance

For the half-year period, the Bank reported a 117% y/y jump in Gross Earnings to ₦2.1 trillion. This improvement was driven by a 177% and 74% y/y growth in Interest Income and Non-Interest Revenue (NIR) to ₦1.1 trillion and ₦899 billion, respectively. Interest Income growth was spurred by the bank’s loan book expansion (+84% y/y), and the effective repricing of its assets, given the impact of prevailing interest rates. Similarly, Non-Interest Revenue (NIR) was supported by a 7X y/y growth in trading income.

On the flipside, the Bank’s Interest Expense rose by 183% y/y to ₦434 billion (Vetiva: ₦398 billion), a reflection of higher cost of funds, given the prevailing rate environment (H1’24: 4.4%, H1’23: 2.6%). Consequently, Net Interest Income printed at ₦715 billion (+173% y/y).

On the cost front, Impairment charges rose by 100% y/y to ₦415 billion, while Opex grew by 115% y/y to ₦472 billion, amidst prevailing macroeconomic headwinds. Overall, the Bank posted a 114% increase in PBT to ₦749 billion, while bottom line expanded by 106% y/y to 577 billion.

Trading Income to strengthen FY’24 performance

For FY’24, we have revised our Interest Income expectation to ₦2.5 trillion (Previous: ₦2.3 trillion), reflecting a stronger loan book expansion amid the current high-interest rate environment. Similarly, we have revised our Interest Expense forecast to ₦1.1 trillion (Previous: ₦900 billion) to account for the higher cost of funds. This will result in a Net Interest Income of ₦1.4 trillion.

Additionally, we’ve raised our Non-Interest Revenue (NIR) projection to ₦1.5 trillion (Previous: ₦838 billion), anticipating higher gains on investment securities, which will bolster trading income. On the cost side, we expect inflationary pressures to drive up operating expenses, leading to a projected Opex of ₦857 billion.

TP revised to ₦55.00 (Previous: ₦52.00)

Overall, our revised estimates for FY’24 yields a Profit Before Tax (PBT) of ₦1.2 trillion and a Profit After Tax (PAT) of ₦1.1 trillion. This translates to an Earnings Per Share (EPS) of ₦34.86 (FY’23: ₦21.56) and a projected Dividend Per Share (DPS) of ₦5.00 (FY’23: ₦4.00)

What shaped the past week? 

Equities: The local market closed in the green this week, extending last week’s green close. The ASI gained 81bps to close at 98,247.99 points, as investors’ sentiments were cautious but opportunistic. At the close of the week, there was mixed sectoral performance. The banking sector (+1.26% w/w) closed as the best performer, lifted mostly by gains in tier-2 banks such as FIDELITY (+24.20% w/w), ETI (+11.11% w/w), WEMABANK (+6.25% w/w), and FCMB (+5.26% w/w). This was closely followed by the Insurance space (0.86% w/w) which has seen sustained positive investors sentiments. Top gainers in the space were SUNUASSUR (+14.52% w/w) and LINKASSURE (+5.10% w/w). The Oil & Gas sector posted a marginal gain (+0.02% w/w), as major players experienced mixed performance during the week. On the other hand, the Consumer Goods index (-0.77% w/w) saw the most decline, as INTBREW lost 5.78% w/w. Finally, the Industrial Goods sector saw a mild decline of 0.13% w/w as JOHNHOLT lost 9.74% w/w

Fixed Income:

Market traded on a mixed note this week. While negative system liquidity due to elevated borrowings at the SLF window caused bearish sentiments on some benchmark instruments, coupon inflows during the were able to spur bullish cares on some other short- and medium-term instruments, as well lower interbank lending rates. OPR closed the week at 26.75% (-450bps w/w). In the secondary market, yield movements were seen on the 91-Day bill (+978bps) and 5-year note (-7bps). Other instruments closed the week flat despite the intra-week volatility experienced.

Currency: At the end of the week, the Naira appreciated by ₦4.89 w/w to close at ₦1,541.52 per dollar.

Domestic Economy: In August, annual headline inflation moderated to 32.15% y/y (Jul’24: 33.40% y/y). The descent can be attributed to high base effects and the harvest season. On a month-on-month basis, headline inflation declined to 2.22% (Jul’24: 2.28% m/m). Due to the harvest season, food inflation moderated while the scarcity of Premium Motor Spirit (PMS) led to a surge in core inflation. While we recognize the significant decline in the prices of some staple food items during the ongoing harvest season, we see room for a mild uptick in inflation to 32.27% y/y in September on the strength of fading base effects and higher transport costs. Following two months of consecutive decline in inflation, we believe the apex bank could keep all policy rates constant at its September rate decision meeting.

Global: Wall Street’s main indexes eased on Friday, as investors held back after a rally in the previous session that was sparked by an oversized interest rate cut by the Federal Reserve. The S&P 500 and the Dow hovered near their record highs and were on track for weekly gains of about 1%, along with the tech-heavy Nasdaq. The Dow Jones Industrial Average fell 0.17% to 41,955.45, the S&P 500 lost 0.36% to 5,693.11, and the Nasdaq Composite lost 0.47% to settle at 17,932.00 ppts.  European markets closed lower on Friday as investors digested a slew of central bank rate decisions this week and their impact on the global economy.  The pan-European Stoxx 600 index closed 1.45% lower to 514.26 points, reversing Thursday’s upbeat performance as most sectors fell into the red. The FTSE also closed lower by 1.19% to 8229.99 points. Finally in Asia, The Bank of Japan kept its benchmark interest rate steady at around 0.25% — the highest rate since 2008 — at the conclusion of a two-day meeting Friday.  China also kept its key lending rates steady, with the one-year loan prime rate at 3.35%, and the five-year LPR at 3.85%. However, Friday’s trading was influenced by the US rate cuts. As a result, Japan’s Nikkei 225 added 1.53% to close at 37,723.91 points. The broad-cased Topix gained 0.97% to 2,642.35 points. Hong Kong’s Hang Seng index

was up 1.27% to 18258.57 points, while Mainland China’s CSI 300 edged 0.16% higher to 3,201.05 points.

What will shape markets in the coming week?

Equity market: The ASI ended with a solid w/w gain for the second straight week, as investors reacted to the corporate earnings report, primarily from the banking space. However, we expect investor sentiment remains cautiously optimistic, ahead of next week’s MPC meeting, where the CBN will announce its interest rate decision.

Fixed Income:  We expect the markets to open on a cautious note next week, as many traders will be on the sidelines awaiting

rate directions from the Bond auction and MPC meeting scheduled for Monday. We also expect liquidity to significantly impact market, as more coupons and FAAC inflows are expected next week. Finally, we see the possibility of an OMO auction in order to prevent the system from being awash with liquidity.