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Cape Town - Banks worldwide have experienced a very slow period from 2009 up until recently. Interest rates have been at an all-time low and an ever-increasing regulatory environment is squeezing margins. Adding to the low rates, we have seen very lethargic economic growth. However, we are starting to see a worldwide global economic recovery.
Interest rates in the US are on the rise and banks have finally adjusted to the tighter regulatory environment. It is expected that emerging markets will pick up alongside the developed world as their increasing infrastructure spending will support commodity prices.
South African banks have up to now not enjoyed the benefits of a global economic recovery. This is due to a lot of political turmoil and the ratings downgrade. The economy is in a technical recession and banks are seeing the effect in credit growth. That being said, it is always darkest before dawn. Should the local economy recover, South African banks are at the forefront to take advantage of it.
This week's share watch places focus on South Africa's big four banks.
Nedbank [JSE:NED]
Nedbank is South Africa's fourth largest bank measured by assets. For the six months to the end of June 2017, Nedbank delivered a decline in headline earnings for the group of 2.7%. Nedbank points out that the decline is due to the loss from their associate ETI. Excluding the loss, headline earnings were up 6.7%.
Nedbank, despite the challenges, increased their interim dividend by 7% to R6.10. This is an indication of the sound balance sheet and great capitalisation levels Nedbank has.
According to Mike Brown, the chief executive, economic uncertainty has weighed in on the results. However, Nedbank continues to accelerate the delivery of digital products and are increasing their focus on cost-efficiencies.
Nedbank is trading on a price-earnings ratio of 9.
Standard Bank [JSE:SBK]
Standard bank offers a range of banking and other financial services and has a footprint in 17 African countries. Standard Bank is also focusing on growing outside of Africa into other emerging markets. Outside of Africa, their operations span across 13 countries.
Standard bank is set to release results for the interim period ending 30 June 2017 soon. It is expected that earnings will increase by 7.75% and that the current price-earnings ratio of 11.68 will decrease to 10.22. Dividends are expected to increase in line with earnings.
Standard Bank will be feeling the impact of the poor Liberty results. Standard Bank has a share of 55% of Liberty's BEE normalised earnings.
ABSA [JSE:BGA]
Barclays Africa Group [JSE:BGA] is one of the biggest banking institutions in South Africa offering clients a wide variety of banking products and solutions ranging from wealth management to assurance. Barclays, the parent company of Barclays Africa is in the process of selling its stake in Barclays Africa.
Barclays Africa recently released their results for the six months ending June 2017. Headline earnings per share increased by 7% to R9.17. Dividends increased by a mere 3%, bringing the interim dividend to R4.75.
Currently Barclays Africa is trading on a price-earnings ratio of 8.2. It is expected that earnings for the full year would remain in line with the half year numbers. Return on equity is at around 16% with the share trading at 1.2 times NAV.
First Rand Limited [JSE:FSR]
The First Rand Group, as do the other four banks, offers a complete range of products and services to the South African market. What differentiates them is their marketing strategy and branding approach. Within the group there are leading financial services franchises such as Rand Merchant Bank, First National Bank, Wesbank and Ashburton Investments.
First Rand is the most expensively priced of the four “big banks” trading on a price earnings of 13. It is expected that earnings will grow by 6.3% for the 2018 financial year.
The group is trading at a premium to the other banks due to their quality portfolio.
Do you agree with Kirk's stock picks? Send us yours and tell us why.
*Kirk Swart is an analyst at Overberg Asset Management, an Authorised Financial Services Provider (No 783) which specialises in the private management of local and global discretionary portfolios as well as pension products.
Disclaimer: The above article does not constitute financial advice and is not a recommendation. Investors must always seek the advice of professionals and trade with caution. Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.
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