Company/Equity Research Report

BUY/HOLD April, 2013

Comparative Analysis of GTBANK and Zenith Bank Sources of Income

OPERATING RESULTS
Table 1: Operating Performance Analysis VARIABLE GTBANK ZENITH % Change 2012 2011 2012 2011 GTBANK ZENITH INTEREST INCOME 160,124.58 119,016.53 213,230.00 155,871.00 34.54 36.80 NET INTEREST INCOME 123,766.41 74,865.35 139,880.00 106,564.00 65.32 31.26 FEE & COMMISSION 39,214.49 38,765.95 44,211.00 36,590.00 1.16 20.83 NET FEE & COMMISSION 37,705.58 36,944.29 44,211.00 36,590.00 2.06 20.83 PROFIT BEFORE TAX 100,141.67 64,745.10 94,048.00 57,144.00 54.67 64.58 PROFIT AFTER TAX 86,347.87 48,932.20 95,813.00 41,795.00 76.46 129.25 TOTAL EQUITY 288,153.630 234,180.56 438,003.00 372,017 23.05 17.74 TOTAL LIABILITY 1,332,163.59 1,289,347.49 1,998,883 1,797,056 3.32 11.23 TOTAL ASSETS 1,620,317.22 1,523,527.55 2,436,886 2,169,073 6.35 12.35 GTBANK and ZENITH 2012 Annual Reports, Chart 1: Components of Fee and Commission Income

OPERATING PERFORMANCE ANALYSIS

Table 1, shows the sources of income for both banks and their percent change. Interest income is the biggest source of income for both GTBANK and ZENITH contributing 76.65% and 75.98% of total income before tax and other operating expenses while Fee and Commission contributed 23.35% and24.02%. Again GTBANK has demonstrated an aggressive used of its interesting bearing assets as well as cost reduction strategies to achieves a 65.32% change in net interest income compare to ZENITH which has a 31.26% change between the period 2011 and 2012. Considering the bottom line, GTBANK posted a Profit before tax of N100.14 billion which is higher than the N94.05 billion declared by ZENITH BANK. Hence GTBANK has fared better on this indicator given their smaller assets/ capital employed compared to ZENITH. Analysis of Fees and Commission also showed that in absolute term, Zenith performed better than GTBANK with a Net Fee and Commission of N44.21bn compare to N37.71bn for GTBANK. A look at the components structure of fee and commission indicated that GTBANK generates higher income from credit related fees and foreign exchange deals than ZENITH. On the other hand, ZENITH generates Commission on Turnover (COT) and other fees and commission than GTBANK, though it has higher liability. Loans and Advances as share of interest bearing income are 67% and 52% for GTBANK and ZENITH for respectively. This underscores the importance of this asset class in the portfolios of banks. The contribution of other asset classes to interest income is distributed in this order for GTBANK: Financial Assets held for trading 19%; Investment Securities 10%; Cash and Equivalents 3%; Assets Pledged 1%. For ZENITH the other assets classes contributions to income are Treasury Bills 33%; Government and other Bonds 12% and Inter-bank Placement 3%.

Charts 2 & 3: Components of Interest Income

Table 2: Profitability and Valuation Indices Company Profit Before Profit After Tax Tax N'Billion N'Billion GTBANK ZENITH BANK 100,141.67 94,048.00 86,347.87 95,813.00

Outstanding Net Interest Shares Margin Billion 29.431 31.396 7.64 6.01

Return on Equity 29.97 21.87

Return on Assets 5.33 4.12

Debt/Equity ratio 4.62 4.56

EPS N 2.90 3.05

P/E Ratio

8.94 7.05

Source: 2012 Annual Reports of GTBANK and ZENITH

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PanAfrican Capital Research.

April 2013

PanAfrican Capital Research

Performance Analysis
Net Interest Margin (NIM) shows that both GTBANK and ZENITH both have positive NIM which implied that their investment strategies relating to interest rate management pay off compared to the costs involved. With NIM of 7.63% for GTBANK and 6.03% for ZENITH, GTBANK is better off. Return on Asset (ROA) for both banks showed that GTBANK has 5.33 while ZENITH has 4.12. The multiple showed that GTBANK has been a better bank in utilizing its assets to generate more profit than ZENITH bank. However, compare to the 2011 multiple of 3.21 for GTBANK and 1.93 for ZENITH, it is axiomatic that ZENITH is growing its ROA faster than GTBANK given its growth rate of 113.47% Compared to 66.04% for GTBANK. Debt/Equity Ratio (D/E) as a measure of financial leverage shows that both banks have a high operating leverage of 4.62 and 4.56 respectively for GTBANK and ZENITH. This mean for every one Naira owned by the shareholder, GTBANK owes N4.62 to creditors and ZENITH owes N4.56 to creditors. Price performance for GTBANK and ZENITH showed upward movement with the Nigerian Stock Exchange (NSE) All Share Index. The trend shows that the share prices were appreciating with the market.

Equity Returns
Table 3: Stock Price Returns GTBANK ZENITH NSE Banking Index Source: Bloomberg The Table above showed that GTBANK out-performed both ZENITH BANK and the NSE Banking 10 Index with a return of 81.25% compare to 63.45% for ZENITH and 42.31% for NSE Banking 10 Index. Again GTBANK price has moved to a 52 week range of N14.12 N27.98 while ZENITH has a 52 week range of N12.50 N23.80 and the NSE Banking 10 Index has a range of 283.18 447.17. 52 Wk. High 27.98 23.80 447.17 52 Wk. Low 14.12 12.50 283.18 1 Yr. Returns +81.25% +63.45% +42.31%

Summary and Recommendation

From the foregoing analysis, GTBANK has fared better than ZENITH in all performance metrics. However, in their industry, both banks are market leaders and in relative terms they are better than most of their peers in the industry. Thus, we recommend BUY/HOLD for both GTBANK and ZENITH.

Chart 4: Relative Performance of GTBANK and ZENITH BANK share price to NSE All Share Index over a year

Source: NSE, PanAfrican Capital Research

Mayowa Oladipupo

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