April 20, 2023/Cordros Report

We update our views on ZENITHBANK (BUY, TP: NGN34.36), UBA (BUY, TP: NGN13.67) and GTCO (BUY, TP: NGN31.70).

For ZENITHBANK, we increase our TP by 27.7% to NGN34.36/s (previously: NGN26.91/s) and maintain our “BUY” rating. The increment to our TP is based on our expectations of higher interest income buoyed by higher interest rates. We also believe that the full transition into a Holdco. structure will boost non-core income growth as the bank will be able to expand its business and develop new revenue streams. However, we note that the challenging business environment – regulatory requirements, higher funding costs and inflationary pressures – still pose potential risks to the bank’s financial performance.

For UBA, we increase our TP by 23.6% to NGN13.67/s (previously: NGN11.08/s) and maintain our “BUY” rating. The rise in our TP is based on our outlook that the group will sustain this financial performance in 2023E, driven by higher funded and non-funded income. On funded income growth, we believe this will be supported by elevated interest rates. We also argue that the persistent increase in digital transaction volumes will boost non-core income growth. In our 2023E update, we factored in underlying risks in the Nigerian banking sector such as; higher cost of funding, inflationary pressures, and higher expected losses on loan books.

Similarly, we increase our TP for GTCO by 12.4% to NGN31.70/s (previously: NGN28.21/s) and maintain our “BUY” rating. The revised TP is driven by our expectations that the group will deliver positive financial results in 2023E. Our projection is buoyed by (1) a projected growth in interest income supported by the elevated yield environment and (2) an expectation that GTCO will sustain its efficient cost management. In addition, we believe the expansion in the group’s business due to its Holdco status will boost potential growth in non-interest income. In our estimates, we considered the potential risks to the group’s earnings – regulatory requirements, inflationary pressures and higher impairment expenses on the loan book.