Sasfin shrugs off headwinds to deliver set of solid earnings

NICHE financial group Sasfin shrugged off economic headwinds over the past year to report solid headline earnings growth of 22% to end-June.

CEO Roland Sassoon yesterday described the economic environment as challenging, singling out labour unrest as particularly worrying. “Coupled with escalating energy prices, SA’s competitive edge is being undermined.”

He ascribed the group’s earnings performance to a combination of strong revenue growth, tighter cost control and a lower tax charge of 20% against the previous year’s 24%.

Total income grew an “encouraging” 16%, driven by the group’s increasing top-line growth initiatives and the 19% growth of noninterest revenue. Net interest income was 9% higher.

Against this background the group’s flagship business banking division, comprising 59% of profit, delivered a credible performance with profit of R89.8m, down from R90.5m the previous year.

The division was plagued by higher bad debt which increased to 0.58% of advances from 0.23% in the previous year.

Nonperforming loans fell to 5.6% at June from 6.4% in June last year.

The Wealth Management division improved its profit contribu- tion 46% to R46m following two years of growth, with funds under management up 31% to R72bn.

Sasfin Securities established a fixed-income and repo-trading desk by securing the services of one of the top trading teams in SA, which will be managed by Leon Krynauw. Mr Krynauw is a former director of Renaissance Capital and BJM Securities.

Mr Sassoon said the 18% overall cost increase was derived largely from the consolidation of the IQuad Group’s cost base for the full financial year, increased software amortisation costs and staff growth.

This resulted in the group’s cost-to-income ratio climbing to 72% from a previous 70%.

This ratio is much higher than the average 55% of the bigger banks, but investors view it as necessary to generate sufficient income. At the banking group the cost ratio fell from 71% to 62%, but the credit loss ratio picked up to 0.7% of advances from 0.6%.

“Excluding this cost base, a year-on-year cost increase of 11% was recorded to support the group’s growth initiatives through investment in technology, employees and infrastructure,” Mr Sassoon said. The group is benefiting from previous transactions, notably the IQuad takeover which has resulted in the commercial solutions division growing earnings by 75% to R34m.