Zenith Bank Plc, in a significant move to meet the Central Bank of Nigeria’s (CBN) new minimum capital requirement of N500 billion, is offering its ongoing hybrid rights and public offers at the bank’s lowest price range. This strategy locks in about a 32% potential immediate return for both existing shareholders and new investors. The Hybrid Rights Issue and Public Offer, aimed at raising approximately N290 billion, will not only help the bank meet the CBN’s requirement but also provide additional working capital to support its expanding operations and investments in information technology infrastructure.
Currently, Zenith Bank’s issued and fully paid share capital stands at N15.698 billion, complemented by a share premium of N255.047 billion. To meet the CBN’s new stipulation, the bank needs to raise an additional N229.225 billion. Despite its robust historical performance, the CBN’s new capital requirement has necessitated this substantial capital raise. According to Dame Dr. Adaora Umeoji, OON, Group Managing Director/CEO of Zenith Bank, this capital infusion will help the bank meet regulatory requirements and enhance its information technology infrastructure.
The Hybrid offer includes a Rights Issue of 5.233 billion ordinary shares priced at N36 per share for existing shareholders, alongside a Public Offer of 2.767 billion ordinary shares available to the public at N36.50 each. The offer, which commenced on August 1, 2024, is set to close on September 9, 2024. These figures suggest that Zenith Bank’s shares are not only undervalued but also present a promising opportunity for capital appreciation. Engaging in the bank’s upcoming capital-raising offer could yield significant capital gains for investors who recognize the potential upside.
Zenith Bank’s strong financial performance adds to its appeal as an investment opportunity. Over the past five years, Zenith Bank’s share price has grown by approximately 57%, establishing itself as one of the most capitalized banks on the Nigerian Exchange Group (NGX), with a market capitalization of N1.130 trillion. In 2023, the bank emerged as the most profitable listed bank on the NGX, reporting a pre-tax profit of N795.962 billion. Notably, in the first quarter of 2024, Zenith Bank achieved about 40% of its total pre-tax profit for 2023, indicating a strong trajectory.
Currently, Zenith Bank’s stock trades at a price-to-earnings (P/E) ratio of 1.30x—significantly lower than the banking sector average of 2.2x—suggesting it may be undervalued compared to its peers. Additionally, its price-to-book (P/B) ratio stands at 0.4, while its price-to-sales (P/S) ratio is 0.44, indicating a considerable discount relative to its book value and annual sales.
Financially, Zenith Bank reported a pre-tax profit of N795.962 billion in 2023, with a solid net interest income of N736.182 billion for the same year. However, concerns linger regarding its loan portfolio, as loans and advances surged by 63% to N6.6 trillion, accompanied by a cost of risk increase of 128% to 7.3%.
For investors, Zenith Bank’s Hybrid Rights Issue and Public Offer represent an enticing opportunity to acquire shares at competitive prices. With strong historical performance and favorable valuation metrics, investors seeking stability and potential growth may find this offer particularly appealing. A review of the trading history of Zenith Bank at the stock market indicates that the bank’s shares have recently traded as high as N47.35 per share, a price range that market pundits believe is fair for the stock. This recent price range implies a discount of about 32% locked into the ongoing hybrid rights and public offers.
With earnings per share of N21.55 for the 2023 business year, Zenith Bank’s offers carry an earnings yield of about 60%, the most attractive value addition among peers and competing offers. This indicates that, beyond its industry-leading dividend payout, investors in Zenith Bank have significant value creation in the investment that can sustain above-average, long-term returns.
At the latest audit, Zenith Bank led the banking industry with a pre-tax profit of N796 billion and a profit after tax of N677 billion in 2023. This bottom-line performance was driven by aggressive business expansion and brand adoption across domestic and foreign markets. The bank’s gross earnings crossed two milestones, rising from N946 billion in 2022 to N2.13 trillion in 2023. Only three Nigerian banks have achieved N2 trillion in gross earnings.
First quarter results for 2024 already indicate that the bank could surpass its 2023 performance in the current year. Gross earnings jumped by 189%, from N270 billion in the first quarter of 2023 to N781 billion in the first quarter of 2024. Profit before tax tripled by 267.8%, reaching N320 billion in March 2024 compared to N87 billion in March 2023. After taxes, net profit leapt by 291%, from N66 billion to N258 billion. Earnings per share simultaneously rose from N2.10 to N8.22.
Analysts believe Zenith Bank has entered a new phase of phenomenal growth. Annualized, the first quarter 2024 performance indicates that the bank’s net profit could surpass a trillion, with potential earnings per share that almost cover the cost of buying into the ongoing offers. Such fundamental performance usually triggers a rally for the stock, underscoring the belief by investment experts that the bank could set a new all-time high within the next few months.
Zenith Bank has been adjudged the Best Commercial Bank in Nigeria for the fourth consecutive year by the prestigious World Finance Banking Awards. It has also been honored for the past three years as the Best Corporate Governance in Nigeria. These awards were revalidated in the Summer 2024 issue of World Finance Magazine, which provides comprehensive coverage and analysis of the financial industry, international business, and the global economy.
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