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

Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Thematic (Sector/Industry)

Nigeria Financials / Thematic (Sector/Industry)

UBA dedicates itself to mainly corporate credit (93% of Loan book), backed mainly by source of funding from transaction accounts (56%) and savings (25.5%). UBA has over 25 million customers, of which 20 million are digital clients. As at December 31, 2020, the bank had more than 1,000 branches and customer touch points across Africa, 2,675 ATMs and over 49,000 POS machines fully deployed.FY20/19 results show highly robust value-quality characteristics. Results can be characterized by positive change in in Profitability (in part), in Liquidity, in headline Asset Quality, in Efficiency, and in Provisioning. There was some erosion in Capital Adequacy and in NIM/Spread. The bank is remarkably liquid with liquid assets representing 47% of Assets. A strong franchise combined with an investment in digital banking have supported well above market growth in deposits (+41% YoY). Capitalisation ratios are high while headline Asset Quality metrics are on a downward trajectory (as charge-offs moved forcefully higher). “Core Income” showed moderate growth YoY, supported by vigorous credit expansion and increased CASA funding, combining with non-negligible trading gains to offset some margin compression and an elevated increase in LLPs which reduced Comprehensive Income growth to 26.2% YoY.A FV of 4%, a PBV of 0.35x, a Dividend Yield of 7.4%, an Earnings Yield of 51.2% and a Total Return Ratio of 13x are derisory levels. UBA commands a top decile global PH Score™ (10) which captures value-quality trends, including a highly supportive valuation variable. The bank also commands a top decile VFM ranking globally which captures fundamental momentum, valuation, and technical indicators.UBA is a candidate for a small GEM or frontier fund though macro issues (FX and oil price) as well as C-19 developments need to be fully taken into consideration.

UBA dedicates itself to mainly corporate credit (93% of Loan book), backed mainly by source of funding from transaction accounts (56%) and savings (25.5%). UBA has over 25 million customers, of which 20 million are digital clients. As at December 31, 2020, the bank had more than 1,000 branches and customer touch points across Africa, 2,675 ATMs and over 49,000 POS machines fully deployed.FY20/19 results show highly robust value-quality characteristics. Results can be characterized by positive change in in Profitability (in part), in Liquidity, in headline Asset Quality, in Efficiency, and in Provisioning. There was some erosion in Capital Adequacy and in NIM/Spread. The bank is remarkably liquid with liquid assets representing 47% of Assets. A strong franchise combined with an investment in digital banking have supported well above market growth in deposits (+41% YoY). Capitalisation ratios are high while headline Asset Quality metrics are on a downward trajectory (as charge-offs moved forcefully higher). “Core Income” showed moderate growth YoY, supported by vigorous credit expansion and increased CASA funding, combining with non-negligible trading gains to offset some margin compression and an elevated increase in LLPs which reduced Comprehensive Income growth to 26.2% YoY.A FV of 4%, a PBV of 0.35x, a Dividend Yield of 7.4%, an Earnings Yield of 51.2% and a Total Return Ratio of 13x are derisory levels. UBA commands a top decile global PH Score™ (10) which captures value-quality trends, including a highly supportive valuation variable. The bank also commands a top decile VFM ranking globally which captures fundamental momentum, valuation, and technical indicators.UBA is a candidate for a small GEM or frontier fund though macro issues (FX and oil price) as well as C-19 developments need to be fully taken into consideration.

UBA: Top Decile VFM Ranking Globally