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FirstRand hoards capital for expansion

Johannesburg - FirstRand [JSE:FSR] did not pay a special dividend on Tuesday, saying it would save cash for sub-Saharan expansion, frustrating some investors who had expected a hefty payout after the bank reported a jump in annual profit.

FirstRand has earmarked R10bn for expansion in promising frontier African markets but has so far failed to secure any acquisition deals, leading to many analysts predicting that some money would be distributed to shareholders.

Chief executive Sizwe Nxasana said on Tuesday the focus would be on increasing its normal dividend, which rose by 28%, instead of a special one-off payout.

"We think that is a more appropriate way to deal with the capital that we have generated from earnings," he said.

READ: FirstRand posts earnings jump

FirstRand shares closed down 3.82% at R44.83 after dropping as low as R44.52.

The stock is, however, still one of the best performing in the banking sector this year, having gained 25% in value.

"The market is disappointed that there was no special dividend," said Tiaan Heydenrich, equity and derivatives trader at PSG Securities.

FirstRand said it would use the R10bn to expand in markets such as Nigeria, Mozambique, Tanzania, Zambia, as well as India, over the next year and a half.

It has been experiencing rapid growth in countries such as Kenya and Angola, and expects Ghana - where it has obtained a provisional licence - to be up and running in early 2015, Nxasana said.

It has, however, been unsuccessful in clinching acquisitions in Nigeria and Ghana in the past few years mainly due to the parties failing to agree on valuations.

Earnings up

The bank's diluted normalised earnings per share, which exclude certain one-time items, rose 21% to 331 cents in the year to the end of June. The lender had given guidance that earnings would climb by as much as 22%.

Net interest income rose 21% to R29.88bn while non-interest revenue from charges such as fees and commissions rose 18% to R36.15bn. Its bad debt charges rose to R5.2bn from R4.8bn a year ago.

The bank said its recent pace of earnings growth was starting to ebb and bad debts by retail customers were starting to rise, without being more specific.

"They are saying growth will slow and bad debts will increase so you should expect that earnings growth isn't going to continue at the pace it has in the past few years, yet the market price had implied that it would continue," said Matthew Warren, head of financials at First Avenue Investment Management.

FirstRand has a price-to-book value of 2.9, compared with the peer median of 1.6. Its price-to-earnings ratio of 13.1 times is also higher than the industry median of 10.8 times.

The bank raised its dividend for the year ended June 2014 to 174c per share.

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