Investors give Absa a boost
ABSA’s share price staged a dramatic recovery on Friday, despite the group reporting a 6% decline in earnings in the six months to June because of
mortgage impairments of R1,15bn.
ABSA’s share price staged a dramatic recovery on Friday, despite the Barclays-owned group reporting a 6% decline in earnings in the six months to June because of mortgage impairments of R1,15bn.
The group’s shares closed 2,95% higher at R139,70 after the bank released results showing a fall in headline earnings to R4,3bn compared with R4,6bn last year.
Absa’s rivals in its peer group flirted with near 52-week highs as investors reacted to the better than expected Absa results and comments that the European Central Bank planned to save the euro.
Global stocks also rallied on Fri- day in anticipation that the US Federal Reserve could provide more stimulus next week to spur growth of the world’s largest economy.
Absa shares have been the worst performer of the big four banks, down by more than 4% this year.
FirstRand and Nedbank shares have been the best performing so far, having risen by almost 30% and 19% respectively. Speaking at the release of the group’s results, CEO Maria Ramos said a series of measures had been instituted to strengthen recoveries, rehabilitate indebted customers and limit foreclosures to the absolute minimum.
The Barclays-owned group’s drop in headline earnings was much lower than the 10% decline it had predicted last month, which had led to a market rout of its shares, at one stage wiping more than R10bn off its market capitalisation.
Adrian Cloete, an equity analyst at Cadiz Asset Management, said on Friday the results were disappointing when compared to the strong trading update that Nedbank released last week. The Old Mutualowned group said it expected halfyear earnings to be up by as much as 26%, boosted by growth in interest and noninterest income.
Mr Cloete said Absa’s credit losses rose significantly by 39% to R4bn and the credit loss ratio moved up to 1,59% from 1,16%.
“In the (outlook) statement management has guided that the credit loss ratio for the full year will still remain elevated at around 1,4%,” said Mr Cloete.
Ms Ramos said gross advances grew marginally to R506bn compared with R504,2bn in the same period last year, even though retail mortgage loans and commercial property finance fell by 3% and 9%, respectively. Absa managed to grow its noninterest income by 5% to R11,17bn and net interest income was up 2% to R11,91bn, she said.
Absa’s cost to income ratio was flat at 54,9% and was not expected to rise significantly during the last half of the year.
The group’s half-year costs rose by 4% to R12,7bn, with staff costs falling by 2% to R6,5bn. The group has been rationalising its staffing levels, which has led to retrenchments and redeployment.
Ms Ramos added that Absa expected revenue growth this year to be subdued.
“Absa remains very profitable and strongly capitalised with a group total capital adequacy ratio of 16,9%,” Mr Cloete said.
“In general the big banks are very well run, strongly capitalised and rank very highly compared to their international peers. This is something SA can be very proud of.”