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Johannesburg - FirstRand [JSE:FSR] and Standard Bank [JSE:SBK] have emerged as clear-cut winners from their most recent reporting periods, with Nedbank proving a laggard and Absa drawing mixed views.
Simon Fillmore from Independent Securities said FirstRand remained his preferred banking stock. "Earnings next year will be positively impacted by the unwounding of bad debts," he said, adding that earnings growth of 20% in 2011 was "quite achievable".
Francois du Plessis from Vega Capital said Standard is the only share he would hold in his portfolio on the back of the latest reporting period.
In a snap note to clients, BoE Private Clients pointed out on Tuesday that FirstRand had achieved the highest return-on-equity level (17%) among the big four banks. Absa returned 15.5%, Standard Bank 13.6% and Nedbank 11.5% over their respective reporting periods.
BoE, however, retained a "hold" recommendation on FirstRand after a strong price rally in recent weeks.
Standard also received kudos from asset managers after maintaining its dividend at last year's level. There is also an expectation that problems at wealth management subsidiary Liberty Holdings have been addressed, and that it will contribute bigger profits to the group.
Stockbrokerage Barnard Jacobs Mellet [JSE:BJM] (BJM) advised clients its preferred stock in the sector was Standard. The brokerage said FirstRand was "fair value" at present levels, but it would consider Rand Merchant Bank Holdings (RMBH) as an alternative investment due to the group's stake in financial services firm Discovery.
Analysts at Deutsche Bank were particularly harsh on Absa, cutting their recommendation on the stock to "sell".
Analyst Voyt Krzychylkiewicz advised his clients Absa will "lag its peers in the earnings recovery". Krzychylkiewicz said Absa had been less conservative with its bad debt provisioning and would not benefit as much as its peers when customers pay back their dues. He also pointed out that while Absa had been good at controlling costs over the last two years, this was unlikely to be maintained.
All eyes on Old Mutual results
Deutsche retained a "hold" recommendation on Standard, while Investec cut its recommendation to "hold".
One analyst who was upbeat about Absa was Steve Meintjes from stockbrokerage Imara SP Reid, who upgraded his recommendation on the red bank to "add".
"Apart from the horrendous impairments, the group showed underlying business growth in customer numbers because of labels, transaction volumes and fee and commission income, improved new business margins and strong growth in assets under management," Meintjes said.
He added Absa had managed to keep its costs low and anticipated that earnings would snap back by "at least 10%" in 2010.
An uninspired performance from Nedbank was offset by the potential for corporate action, with all eyes turning to Old Mutual's results presentation on Thursday. There has been speculation that Old Mutual could look to tidy up its stable by announcing a strategic review of assets that would see Nedbank on the chopping block.
BJM told clients Nedbank had not been conservative around bad debt provisioning and added: "Non-interest revenue is too low relative to the other banks, and a low tax rate which bolstered these numbers is not sustainable."
Nedbank's low return on equity has been a long-standing problem which incoming CEO Mike Brown is expected to be under pressure to tackle.
- Fin24.com
