The Zenith Bank Public Offer - Can an elephant be as nimble as a cheetah?
Zenith Bank’s (“Zenith”) N50bn public offer ended on Monday March 20th, 2006. The offer was previously scheduled to close two weeks earlier on March 6th, 2006. In a recent Vanguard Newspaper article it was suggested that “the offer might have actually been fully subscribed and that the bank’s decision to extend the closing date might be aimed at a bigger target of between N60 billion and N70 billion and would work towards retaining everything subject to SEC approval since government new liberal regulations on financial institutions allow banks to retain any excess proceeds of an offer.” Ummm……. Sounds Interesting?
Whatever the case may be if the public offer is fully subscribed or on the contrary undersubscribed like the rumor mill says, is/was Zenith a good buy?
Jim Ovia (Zenith’s CEO/MD) has done a wonderful job running Zenith Bank over the years; In 2004 Zenith Bank successfully went to the market to raise capital and they are doing it again this year. The issue about raising capital is that one has to be able to use this ‘new’ capital to generate adequate returns for shareholders. Has/can Zenith use/invest this additional capital effectively? Or a more appropriate question is can an elephant be as nimble as a cheetah? Zenith is growing from a cheetah to an elephant in the space of two years - from a N15bn bank (shareholders funds) to a potential 100bn bank.
The dynamics of managing a bank with 15bn in shareholders funds in 2004 is a lot different from managing a bank with 90bn - 100 bn in shareholders funds 2006.
There have been many rumors about what Zenith intends to do with the money, 1. Acquire Union Bank - the 2nd largest bank in the country or 2. Manage external reserves (the Banks in the country require a capitalization of $1 billion or N127 billion to qualify for the management of the external reserves) – apparently this is a very profitable business or 3. e.t.c but whatever the case might be it would be interesting to see how it all plays out..
In summary an investor in Zenith’s offer on has to consider:
Has/can Zenith use/invest new capital effectively?
Can Jim Ovia manage a N100bn bank as well as he did N10-15bn bank?
I don’t have a clear cut answer to these questions, hence buying the shares will be purely speculating (There is a clear difference between speculating and investing). But I think regardless of how Zenith turns out its shares are probably going to go up substantially because the Nigerian stock Market is highly inefficient.
Whatever the case may be if the public offer is fully subscribed or on the contrary undersubscribed like the rumor mill says, is/was Zenith a good buy?
Jim Ovia (Zenith’s CEO/MD) has done a wonderful job running Zenith Bank over the years; In 2004 Zenith Bank successfully went to the market to raise capital and they are doing it again this year. The issue about raising capital is that one has to be able to use this ‘new’ capital to generate adequate returns for shareholders. Has/can Zenith use/invest this additional capital effectively? Or a more appropriate question is can an elephant be as nimble as a cheetah? Zenith is growing from a cheetah to an elephant in the space of two years - from a N15bn bank (shareholders funds) to a potential 100bn bank.
The dynamics of managing a bank with 15bn in shareholders funds in 2004 is a lot different from managing a bank with 90bn - 100 bn in shareholders funds 2006.
There have been many rumors about what Zenith intends to do with the money, 1. Acquire Union Bank - the 2nd largest bank in the country or 2. Manage external reserves (the Banks in the country require a capitalization of $1 billion or N127 billion to qualify for the management of the external reserves) – apparently this is a very profitable business or 3. e.t.c but whatever the case might be it would be interesting to see how it all plays out..
In summary an investor in Zenith’s offer on has to consider:
Has/can Zenith use/invest new capital effectively?
Can Jim Ovia manage a N100bn bank as well as he did N10-15bn bank?
I don’t have a clear cut answer to these questions, hence buying the shares will be purely speculating (There is a clear difference between speculating and investing). But I think regardless of how Zenith turns out its shares are probably going to go up substantially because the Nigerian stock Market is highly inefficient.
posted by Goldtruck at 11:47 AM
3 Comments:
The view that Zenith Bank shares would spike due to "market einefficiency" is rather faulty. Although the NSE has some problems with market corrections; I don't think the bloc of institutional investors and growing league of sophisticated small timers are totally ignorant. Ovia has done a decent job so far, let's see how his team evolves with the help of JP Morgan.
The last statement of this article read "But I think regardless of how Zenith turns out its shares are probably going to go up substantially because the Nigerian stock Market is highly inefficient."
To clarify my postion on this:
If Zenith does pretty well - it's shares goes up by y * X : Because it is a good buy
Zeith doesn't do that well - It's shares goes up by X : Because with the increasing bloc of instituional investors in market - there seems to be alot of of money chasing few good assets
If zenith does bad : it shares should suffer.
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