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Investors, both existing shareholders and new participants, stand to benefit from a potential 32% immediate return on investment through Zenith Bank’s ongoing hybrid rights issue and public offer, the bank revealed on Thursday.
Zenith Bank Plc is launching this significant capital raise to meet the Central Bank of Nigeria’s (CBN) updated minimum capital requirement of N500 billion. The bank is offering its hybrid rights and public shares at its lowest price point to facilitate this.
The bank aims to raise approximately N290 billion through this initiative, which will help it comply with the CBN’s new capital mandate and provide additional funds for expanding operations and investing in technology infrastructure.
Currently, Zenith Bank’s issued and fully paid share capital stands at N15.698 billion, with a share premium of N255.047 billion. To align with the CBN’s new requirement, the bank needs an additional N229.225 billion.
Despite its strong historical performance, the CBN’s new capital requirement has driven this substantial capital raise. According to Dame Adaora Umeoji, Group Managing Director/CEO of Zenith Bank, the capital infusion will help meet regulatory demands and enhance the bank’s IT infrastructure.
The hybrid offer includes a Rights Issue of 5.233 billion ordinary shares priced at N36 each for existing shareholders and a Public Offer of 2.767 billion ordinary shares available to the public at N36.50 each.
The offer, which began on August 1, 2024, and will close on September 9, 2024, indicates that Zenith Bank’s shares are currently undervalued, presenting a promising opportunity for capital appreciation.
Investors participating in this capital raise may realize significant gains, given Zenith Bank’s robust financial performance. The bank has consistently demonstrated resilience with impressive profitability metrics and a solid track record.
Over the past five years, Zenith Bank’s share price has appreciated by approximately 57%, solidifying its position as one of the most capitalized banks on the Nigerian Exchange Group (NGX) with a market capitalization of N1.130 trillion.
In 2023, Zenith Bank was the most profitable listed bank on the NGX, with a pre-tax profit of N795.962 billion. In the first quarter of 2024, the bank achieved around 40% of its total pre-tax profit for 2023, showcasing a strong growth trajectory.
Zenith Bank’s stock currently trades at a price-to-earnings (P/E) ratio of 1.30x, well below the sector average of 2.2x, indicating potential undervaluation. Its price-to-book (P/B) ratio is 0.4, and its price-to-sales (P/S) ratio is 0.44, suggesting a significant discount relative to its book value and annual sales.
The bank reported a pre-tax profit of N795.962 billion in 2023, supported by a net interest income of N736.182 billion. However, its loan portfolio surged by 63% to N6.6 trillion, with a cost of risk increase of 128% to 7.3%.
Zenith Bank’s hybrid rights and public offers, priced at the bank’s lowest range, offer a 32% potential gain for investors. The bank, Nigeria’s largest by profit, is offering a rights issue of 5.233 billion ordinary shares at N36 per share. The shares were pre-allocated to existing shareholders at a ratio of one new share for every six shares held as of July 24, 2024.
For investors, Zenith Bank’s Hybrid Rights Issue and Public Offer present an attractive opportunity at competitive prices. The bank’s strong historical performance and favorable valuation metrics make this offer particularly appealing for those seeking stability and growth potential.
Zenith Bank’s shares have recently traded as high as N47.35 per share, suggesting a discount of approximately 32% in the current offer. With an earnings per share of N21.55 for the 2023 fiscal year, the offers carry an earnings yield of around 60%, the highest among its peers. This indicates significant value creation potential and the possibility of above-average long-term returns.
The bank’s performance in 2023, with a pre-tax profit of N796 billion and a profit after tax of N677 billion, was driven by aggressive expansion and brand adoption in domestic and international markets. Zenith Bank’s gross earnings soared from N946 billion in 2022 to N2.13 trillion in 2023, making it one of only three Nigerian banks to surpass N2 trillion in gross earnings.
In the first quarter of 2024, Zenith Bank reported a remarkable 189% increase in gross earnings, reaching N781 billion compared to N270 billion in Q1 2023. Profit before tax tripled to N320 billion, and net profit surged by 291% to N258 billion, with earnings per share rising from N2.10 to N8.22.
Analysts believe Zenith Bank is poised for exceptional growth, with the potential to surpass a trillion in net profit for the current year. This strong performance is expected to trigger a stock rally, with the bank potentially setting a new all-time high in the coming months.
Zenith Bank has been named the Best Commercial Bank in Nigeria for four consecutive years by the World Finance Banking Awards and recognized for its corporate governance. These accolades reflect the bank’s impressive financial performance, customer service, sustainability efforts, and governance practices.
Founded by Jim Ovia in 1990, Zenith Bank became a public limited company in 2004 and was listed on the Nigerian Stock Exchange the same year. It also listed $850 million worth of shares on the London Stock Exchange in 2013. Zenith Bank has grown into one of Africa’s leading financial institutions.
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