Zenith Bank PLC Named Top Banking Pick by Renaissance Capital Africa

BY CHUKWUDI IWUCHUKWU Zenith Bank PLC Shares listed as top pick ahead GTCO and Access Corp by Renaissance capital Africa research By Chukwudi Iwuchukwu Zenith Bank Plc continues to reinforce its position as one of Nigeria’s most resilient and fundamentally strong financial institutions, with recent research by Renaissance Capital Africa (Rencap) highlighting significant upside potential in both valuation and shareholder returns. Following a comprehensive review of the Nigerian banking sector, Renaissance Capital Africa Research identified Zenith Bank as a top conviction pick, reflecting renewed confidence in the Bank’s balance sheet strength, earnings quality, and long-term value proposition. Despite the strong performance of the NGX Banking Index in recent periods, Rencap believes Zenith Bank’s current market valuation does not yet fully reflect its improving fundamentals, leaving room for further upside. A key driver of this positive outlook, according to the Research, is the successful balance sheet clean-up arising from the resolution of regulatory forbearance exposures. Loan write-offs and improvements in asset quality have significantly strengthened Zenith Bank’s financial position, providing a more solid foundation for sustainable growth and positioning the Bank to benefit from ongoing policy reforms within the Nigerian financial system. In prior periods, sector-wide profitability was boosted by abnormal foreign exchange-related gains. However, Rencap notes that these gains were largely unrealized and, in line with regulatory guidelines, could not translate into higher cash dividend distributions. Consequently, dividend payouts across the period between 2023 and 2024 remained constrained, despite record headline profitability. Dividend Outlook Historically, Zenith Bank has demonstrated a strong commitment to shareholder returns. In 2021 and 2022, the Bank recorded one of the highest dividend payout ratios in the sector, underpinned by robust cash generation and disciplined capital management. Looking ahead, analysts expect a return to higher and more sustainable dividend payout ratios as cash profits improve and balance sheet pressures ease. This anticipated recovery in dividend capacity is viewed as a key catalyst for enhanced market valuation, particularly as investors increasingly prioritize income stability and payout consistency. Valuation Upgrade Reflects Improved Fundamentals Reflecting these positive developments, Renaissance Capital Africa Research upgraded Zenith Bank from HOLD to BUY, increasing its Target Price by 96%. The revision reflects improved valuation assumptions, including a lower risk-free rate aligned with changes in government bond yields, as well as refined beta estimates. Although sustainable return on equity assumptions have been moderated to reflect near-term earnings growth challenges, Rencap maintains that Zenith Bank’s valuation remains compelling. The research firm believes that the combination of a cleaner balance sheet, stronger cash earnings, and improved dividend prospects positions the Bank for superior long-term value creation. Outlook Zenith Bank Plc stands at a pivotal stage, transitioning from a phase of balance sheet repair to one of renewed growth and enhanced shareholder value. As regulatory headwinds ease and earnings quality improves, the Bank is well positioned to deliver stronger dividends and unlock further market value. With a proven track record of resilience, prudent governance, and a shareholder-focused strategy, Zenith Bank remains a standout institution within Nigeria’s financial services sector, well equipped to sustain performance and create lasting value in the years ahead. Chukwudi Iwuchukwu is a Nigerian lawyer based in Lagos Nigeria.