Nedbank breaks through
Healthy earnings growth expected despite large expenditure to expand market share
FOR THOSE WHO invested in the Nedbank Group as a recovery share there was good news recently when it broke through an important resistance level at R138,80. That’s where the price bogged down in March 2006 after a very strong run. It recently broke through decisively, backed by good volumes when it reached a high of R142/share.
The share is still some distance from its peak of R182,20 reached in January 2001 and resistance can be expected at R150 and R168.
Though Nedbank treated shareholders well by climbing 171% since its low of R52,40 in August 2004, it’s nevertheless moving more or less in line with the bank index. For example, in the same period Absa rose by 175%, Standard by 145% and FirstRand 147%.
Nedbank’s half-year report to June last year showed that although it had made good progress in overcoming the setbacks of the past, it still had some way to go before its return on equity (RoE) will reach the same level as that of its main rivals.
In order to halt and turn around its loss of market share, Nedbank has taken drastic steps, such as reducing bank charges for individual accounts by 13%, while, for the fourth consecutive year, the charges for Nedbank Retail’s small business services remained unchanged. Charges for Mzansi accounts were reduced. It hopes to make up for the loss of income by larger volumes.
To achieve that, it’s investing aggressively in its distribution network. For example, between 2006 and 2008, 110 new branches (400 outlets) will be opened, while its ATM network will be expanded by 50%. Its target is a return of 20% on average ordinary shareholders’ equity, after that stood at 18,6% at end-June 2006. Indications are that it should achieve its target.
A healthy increase in earnings and dividend is expected for the year to December.
The McGregor BFA consensus is an increase of 35% to 1 076c (797c) and a dividend of 437c (394c). The dividend yield is currently 2,8%.
Its price breaking through the resistance level of March 2006 confirmed that investors now rate it in line with its major competitors and Nedbank should therefore continue its bull trend.
Trying to halt loss of market share.