Publications
Partners
Johannesburg - The last 30 days have thrown up some interesting times for the South African banking sector, but despite significant events banking shares look likely to continue powering their way upwards.
HSBC has walked away from a transaction with Nedbank Group [JSE:NED] while looming retrenchments at Standard Bank Group [JSE:SBK] - just when the sector appeared to be coming out of the doldrums - and Capitec bumping its head against the R150 mark have all led to some debate about where the sector is headed and what the catalysts will be for growth.
With the Nedbank share price gaining 9% on the news that HSBC was bidding for the Old Mutual [JSE:OML] stake, there was a sense that the transaction was a foregone conclusion. Friday saw South Africa's fourth-largest bank slump more than 6% as HSBC turned its back on the deal with little explanation.
This prompted Imara SP Reid analyst Steve Meintjes to change his call on the stock from "fully valued" to "hold". Meintjes said that following the sell-off, Nedbank's price to earnings multiple was back in line with the other big four banks and the share was no longer trading at a significant premium to the rest of the sector.
"The sell-off from the announcement has seen the premium drop to 5%, and with investors likely to take a more cautious approach in the aftermath of today's (Friday's) sell-off in case another party comes to the table with a deal, we upgrade (the call)," he said.
Paul Hansen, a portfolio manager at asset manager Stanlib, also sees positive signs for the banking sector as a whole.
"The JSE Banks Index has been consolidating for much of 2010, trading not far from its record highs seen in 2007," he said in his weekly commentary to shareholders. He added that the index "has a fairly good probability of also having its day in the sun and rising to record highs in the not-too-distant future."
Standard Bank, however, does not share Hansen's enthusiasm. The group recently announced to staff that it would be looking at retrenchments in a variety of business units both in London and Johannesburg as it sought to control costs.
However, this has not discouraged all analysts. Henry Hall, from Citigroup recently released a note to clients, saying that this was "the right decision" and maintained his "buy" call on the stock.
"While most banks in the world have cut headcount over the last two years, Stanbank did not - it actually added staff. It did, however, face a particular cost conundrum given its ambitions to add new revenue streams by building a global emerging markets bank," he wrote.
Hall added that the Standard Bank cuts could remove as much as R700m to R1bn in costs from the group and improve the return on equity for the group in 2011.
Capitec still a firm favourite
Derivatives trading firm Global Trader, however, holds a "short" position among its trade ideas for clients. It said that with a price target of R92.50, Standard Bank is trading at R109.20.
Asset manager ValuGro believes that unlike Standard Bank, Absa has sent a positive sign to the market by ruling out retrenchments and instead electing to focus on aggressive growth strategies. "(It) sends a good message out there to investors and should be positive for sentiment toward Absa," the firm commented on micro-blogging service Twitter.
Low-cost banking group Capitec remains a firm favourite of Fin24.com readers, but since the end of September the stock has traded sideways at around R148 per share.
However, this has not discouraged parent PSG, which noted: "Capitec remains in a sound financial position with R1.9bn in equity and a well diversified mix of funding, with R4.9bn in retail and R3.6bn in wholesale deposits.
"The mix of funding available to the business makes it possible to manage liquidity conservatively and ensures that funding is not a constraint on growth."
Meintjes maintained his "add" recommendation on the stock, commenting: "The bank continues to achieve excellent results in conditions that have seen many of its competitors struggling, and it just keeps on growing despite concerns that the results of the past aren't sustainable.
"As it continues to expand its branch network in the remaining six months of the financial year, its innovative and cost effective products will also continue to attract interest from customers of its competitors."
- Fin24.com
*The writer holds ordinary and preference shares in Standard Bank.
HSBC has walked away from a transaction with Nedbank Group [JSE:NED] while looming retrenchments at Standard Bank Group [JSE:SBK] - just when the sector appeared to be coming out of the doldrums - and Capitec bumping its head against the R150 mark have all led to some debate about where the sector is headed and what the catalysts will be for growth.
With the Nedbank share price gaining 9% on the news that HSBC was bidding for the Old Mutual [JSE:OML] stake, there was a sense that the transaction was a foregone conclusion. Friday saw South Africa's fourth-largest bank slump more than 6% as HSBC turned its back on the deal with little explanation.
This prompted Imara SP Reid analyst Steve Meintjes to change his call on the stock from "fully valued" to "hold". Meintjes said that following the sell-off, Nedbank's price to earnings multiple was back in line with the other big four banks and the share was no longer trading at a significant premium to the rest of the sector.
"The sell-off from the announcement has seen the premium drop to 5%, and with investors likely to take a more cautious approach in the aftermath of today's (Friday's) sell-off in case another party comes to the table with a deal, we upgrade (the call)," he said.
Paul Hansen, a portfolio manager at asset manager Stanlib, also sees positive signs for the banking sector as a whole.
"The JSE Banks Index has been consolidating for much of 2010, trading not far from its record highs seen in 2007," he said in his weekly commentary to shareholders. He added that the index "has a fairly good probability of also having its day in the sun and rising to record highs in the not-too-distant future."
Standard Bank, however, does not share Hansen's enthusiasm. The group recently announced to staff that it would be looking at retrenchments in a variety of business units both in London and Johannesburg as it sought to control costs.
However, this has not discouraged all analysts. Henry Hall, from Citigroup recently released a note to clients, saying that this was "the right decision" and maintained his "buy" call on the stock.
"While most banks in the world have cut headcount over the last two years, Stanbank did not - it actually added staff. It did, however, face a particular cost conundrum given its ambitions to add new revenue streams by building a global emerging markets bank," he wrote.
Hall added that the Standard Bank cuts could remove as much as R700m to R1bn in costs from the group and improve the return on equity for the group in 2011.
Capitec still a firm favourite
Derivatives trading firm Global Trader, however, holds a "short" position among its trade ideas for clients. It said that with a price target of R92.50, Standard Bank is trading at R109.20.
Asset manager ValuGro believes that unlike Standard Bank, Absa has sent a positive sign to the market by ruling out retrenchments and instead electing to focus on aggressive growth strategies. "(It) sends a good message out there to investors and should be positive for sentiment toward Absa," the firm commented on micro-blogging service Twitter.
Low-cost banking group Capitec remains a firm favourite of Fin24.com readers, but since the end of September the stock has traded sideways at around R148 per share.
However, this has not discouraged parent PSG, which noted: "Capitec remains in a sound financial position with R1.9bn in equity and a well diversified mix of funding, with R4.9bn in retail and R3.6bn in wholesale deposits.
"The mix of funding available to the business makes it possible to manage liquidity conservatively and ensures that funding is not a constraint on growth."
Meintjes maintained his "add" recommendation on the stock, commenting: "The bank continues to achieve excellent results in conditions that have seen many of its competitors struggling, and it just keeps on growing despite concerns that the results of the past aren't sustainable.
"As it continues to expand its branch network in the remaining six months of the financial year, its innovative and cost effective products will also continue to attract interest from customers of its competitors."
- Fin24.com
*The writer holds ordinary and preference shares in Standard Bank.
