Abil: A mirror for the economy

Johannesburg - Investors hoping for guidance on how African Bank Investments (Abil) is finding its new subsidiary, furniture trader Ellerine, were disappointed when Abil CEO Leon Kirkinis told Wednesday afternoon's conference call briefing that, as Abil has in effect been in charge for barely two weeks, any comment would be premature.

Mind you, Kirkinis was hardly any more forthcoming on how Abil itself is faring, warning that first-quarter trends shouldn't be extrapolated for the full year. But he did promise that operating and financial targets will be updated to include Ellerine when the interim report is released, in mid-May.

So far, cost control is ahead of target, sales growth, bad debts and gross advances are at the upper end of target ranges, and the decline in total yields is on track to the target 5%.

He did, though, give useful information on the state of the markets the enlarged group serves, and the impact of inflation on differing income groups.

Lower LSM segments (income groups, to you and me) have been hit mainly by inflation, though this has been offset by lagged wage increases which have, broadly outstripped inflation. Higher LSM segments, on the other hand, are more vulnerable to the impact of rising interest rates on their debt servicing costs, with inflation a lesser - but still present - problem.

Up the income curve

A major impact of the National Credit Act has been the ability of Abil - and, no doubt, other microlenders - to move up the income curve and make bigger loans. While Abil made only 7% more loans in the December quarter than a year before, their average size rose 37%, from R5 000 to R6 900.

Yet average loan instalments as a percentage of clients' net income has been falling, from about 36% in the middle of last year to just over 30%. And the average term of new loans, which climbed from about 22 months 18 months ago to almost 35% late last year, is now easing back towards the target of about 30 months.

At Ellerine, for the four months to December like-on-like sales rose just 1%. Credit sales rose by 6% while cash sales fell 5%. Sales to lower LSM groups rose 13%, to middle groups fell 7% and to upper groups fell 3% - useful confirmation of who's being squeezed most by the tightening economy. Arrears are creeping up, but not (yet?) a cause of concern.

Asked by an analyst why Abil's own credit sales are doing so much better than Ellerine's - or other furniture retailers' - Kirkinis said there is a simple, one-word answer: selectivity. For Abil, unlike a furniture trader, there is no such thing as an average customer: its new, NCA-linked lending policies allow much greater differentiation of customers and pricing.

But despite Kirkinis' characteristic positive mood, the market seems unimpressed. Though the Abil share price had a good day yesterday, with a 90c gain, by late morning today it was off 40c, or 1.4%, against a generally flat market.

- FIn24