May 8, 2025/Cordros Report
ZENITHBANK’s Q1-25 results aligned with our expectations. The bank recorded a 20.7% y/y growth in profit after tax as the strong core growth of 71.5% y/y offset the 67.1% y/y decline in non-core income. For 2025E, we forecast a 34.8% y/y growth in funded income (previously: +24.9% y/y) amid a 28.3% y/y decline in non-funded income (previously: -8.4% y/y). The larger decline forecast in non-core earnings reflects our expectation for much lower FX-related trading gains due to the relative stability of the naira. However, net fees and commissions income (+40.0% y/y) are expected to cushion the decline in non-funded income. We further revised our gross DPS for 2025E to NGN8.00 (previously; NGN7.00) hinged on expectations of a strong profitability, implying a dividend yield of 16.3% based on the last closing price of NGN49.00/s (7 May). Consequently, we increase our TP by 1.5% to NGN75.29/s and maintain our “BUY” rating. On our estimates, ZENITHBANK is trading on a 2025E P/E of 2.4x and P/B of 0.5x.
Core Strength to Support Profitability: We project a 17.5% y/y increase in gross earnings for 2025E, supported by a 34.8% y/y rise in core income. This should be driven primarily by improved credit creation (+25.0% y/y) and a larger investment securities base (+46.5% y/y). We exect the increase in interest income will offset the anticipated 28.3% y/y decline in non-core income. Precisely, we also expect the sustained growth in the bank’s digital banking transactions – particularly its agency banking and POS business – to drive the net fees and commission income line 40.0% y/y higher. Meanwhile, as most of the bank’s Stage 2 loans have already been restructured and substantial provisions were made in 2024FY, we expect Cost of Risk to moderate to 4.5% in 2025E (2024FY: 7.3%). Further down, we expect OPEX and operating income to increase by 24.7% and 23.1%, respectively, causing CIR ex-LLE to print 31.7% (2024FY: 29.5%). Accordingly, we expect profitability to increase by 25.3% y/y to NGN1.29 trillon. This indicates an EPS of NGN31.52 (-4.2% y/y), which reflects the dilutive impact of the additional 9.67 billion shares recently issued.
Stable Asset Quality and Prudent Provisioning: ZENITHBANK’s asset quality remained stable in Q1-25, with the NPL ratio holding steady at 4.7% (2024FY: 4.7%), below the regulatory benchmark of 5.0%. The bank maintained a high provisioning coverage of 217.2% (2024FY: 223.0%), reflecting a cautious approach to credit risk despite improvements in the loan book quality. As expected, impairment charges declined in Q1-25, resulting in a moderation in the Cost of Risk to 1.8% (Q1-24: 2.8%). We believe the relatively modest provisioning requirement, supported by cleaner risk assets, will underpin earnings resilience through 2025E.
Valuation: Our year-end target price is NGN75.29/s, derived from a blend of the Dividend Discount Model (60.0%), Gordon Growth Model (30.0%), relative P/E (5.0%) and relative P/B (5.0%) valuation methodologies. Assuming a 31.3% CoE and a forecasted dividend pay-out ratio of 25.4%, our DDM TP amounted to NGN77.59/s. For GGM, we maintained CoE at 31.3% and utilised an average RoE of 16.8%, deriving a TP of NGN79.21/s. On Relative P/E, we utilised the tier-1 average P/E of 1.5x and applied it to our 2025E EPS estimate of NGN31.52/s to derive a TP of NGN46.49/s. Lastly, for Relative P/B, we utilised our 2025E book value per share of NGN144.05/s and a P/B of 0.4x and derived a fair value estimate of NGN52.94/s.
