Zenith Bank has released its 2012 Full year financial statements and in typical fashion broke records. They have now made headlines as the first local bank to hit N100billion in Profit After Tax. Zenith Bank finished the year with a Gross Earnings of N307billion up 25.8% from the N243billion they posted a year earlier. Interest Income a major part of the gross earnings was a whopping N221billion (2011:N163billion) for the period under review. Net Interest Income (which is interest income after deducting interest expense) was N156billion meaning that they incurred N29 for every N100 of Interest they earned. Zenith Bank also earned an extra N50.4billion in commission and fees for the period and an extra N20billion from other sources bringing the total Net Operating Income to N218billion. Zenith Bank will go on to post a record N102billion in pre-tax profits and N100.6billion in profit after tax for the year ended December 2012.
How did they get here?
This is where it gets interesting! So from the N307billion the bank earned as gross income N218billion will be left after deducting interest it pays to depositors and other direct expenses. Zenith has thus efficiently retained 71% of its gross earnings. Surely, the bank also incurs other operating cost such as personnel cost, depreciation, admin expenses etc. The total of this for the year came to about N119billion (2011:N116billion) leaving the bank with an operating profit of N98billion. They now earned an extra N3.5billion from discontinued operations (winding down of businesses they no longer need) which helped took them past the magical N100billion (actual was N102billion) in pre-tax profits.
How good is this result?
Zenith unlike its peers has been bogged down with huge operating cost over the years and I always figured if they are able to keep operating expenses growing below 5% they will pass the likes of GTB in terms of profitability. This they have done this year as operating expenses only sliced 55% of Net operating income. For shareholders of the company who love to hold longterm, Zenith bank also had an impressive return on average equity of 23.5% (2o11:12.4%). The implication of this is that the bank has been able to earn an extra N23.5 for every N100 shareholders own which is on industry average in quite high. Zenith Bank also ended the year with a good customer deposit base of about N1.9trillion, about N700billion more than GTB. Loans and advances also grew 10.7% to N989billion. I expect the bank to lend well over N1.1trillion by the end of this year (2013) as it cautiously looks for quality assets (borrowers).
Is the stock worth buying?
As mentioned in my past blogs, most banking stocks are cheap trading well below 10x their earnings. Compare that to Nestle trading at 28x or Cadbury 24x. As at 3rd of April 2013, Zenith Bank cost N22.28 per share representing about 7x its earnings. That in my view is cheap stock considering he impressive ROE of 23% and non performing loan ratio of 3.15% (maximum to be worried about it over 5%). It is worth nothing that banks have a way of wiping out past profits in just one year of bad loan making. Zenith Bank on the back of this result is a buy for me!!!
Zenith Bank Published its 2012 Audited Accounts on the website of the NSE
indeed its a beautiful result. Its a count down to sky rocket.