In­vestec: dar­ling of bank stocks

Group of­fers more bang for your buck, an­a­lysts say

Business Day - - FRONT PAGE - War­ren Thomp­son

The prospects of SA’s banks will be tied to the wider per­for­mance of the econ­omy in 2019, with In­vestec pos­si­bly of­fer­ing the most value at the mo­ment.

The prospects of SA’s banks will be tied to the wider per­for­mance of the econ­omy in 2019, with In­vestec pos­si­bly of­fer­ing the most value at the mo­ment.

Harry Botha, banks an­a­lyst at Av­ior, said In­vestec ap­peared to be the most at­trac­tive from a val­u­a­tion per­spec­tive.

The In­vestec group has three op­er­at­ing di­vi­sions: as­set man­age­ment, wealth & in­vest­ment, and spe­cial­ist bank.

For the spe­cial­ist bank, Botha ex­pects op­er­at­ing earn­ings to grow by 21% for the cur­rent fi­nan­cial year (to end March) and by 10% for fi­nan­cial year 2020.

Pa­trice Ras­sou, head of eq­ui­ties at San­lam, says the bank is trad­ing at al­most half its book value. On the cur­rent share price of R80, Ras­sou says in­vestors are buy­ing the spe­cial­ist bank for R35 a share when it has a net as­set value of R64 per share. “So it looks re­ally cheap.”

Botha ex­pects im­proved eco­nomic ac­tiv­ity after the elec­tions as a re­sult of more pol­icy cer­tainty. “That should start to en­cour­age in­vest­ment in the econ­omy, and I think the banks with more ex­po­sure to cor­po­rate and in­vest­ment bank­ing should do bet­ter. This in­cludes the likes of Ned­bank and Stan­dard Bank.”

Ras­sou thinks Ned­bank should pro­duce earn­ings growth in the high sin­gle dig­its with the ben­e­fit of a turn­around in Ecobank, to­gether with strong cost con­trol.

Ras­sou and Botha agree that the rest of Africa op­er­a­tions will con­tinue to grow earn­ings faster than is pos­si­ble lo­cally.

Stan­dard Bank re­ceives the largest con­tri­bu­tions of earn­ings from its rest of Africa plat­form.

“Earn­ings growth should be closer to 15% for Africa, as they con­tinue to win cus­tomers on the con­ti­nent. They are get­ting close to some of the largest banks in terms of com­pet­i­tive­ness, and in multi­na­tional bank­ing they are com­pet­ing with the likes of Stan­dard Char­tered,” says Botha. He thinks Stan­dard Bank should sup­port the group to de­liver earn­ings growth closer to 10% over­all in 2019.

Ras­sou ex­pects mid-sin­gledigit growth from Absa. “Absa has been the lag­gard and they say they have in­creased risk ap­petite to lend, but we are not see­ing it yet. They can push un­se­cured lend­ing, but the mar­ket is quite con­strained.”

Ac­cord­ing to Ras­sou, FirstRand should de­liver the fastest earn­ings growth of the big four as FNB con­tin­ues to reap the re­wards of strong client ac­qui­si­tion, which is grow­ing its non­in­ter­est rev­enue.

“It will also ben­e­fit from the in­te­gra­tion of re­cent ac­qui­si­tion Al­der­more Plc into its books, which should boost earn­ings growth into the early teens for 2019,” says Ras­sou.

Capitec will grow earn­ings in the low teens, ac­cord­ing to Ras­sou “with a num­ber of en­gines for growth be­ing de­vel­oped”.

“The new busi­ness they are writ­ing for fu­neral poli­cies is at the same rate as San­lam. The credit card is also an­other av­enue for growth, so it’s a strat­egy that will help pen­e­trate the mid­dle mar­ket and high­er­in­come seg­ments.”

So where can the sur­prises come from?

“We are ex­pect­ing a fairly stable in­ter­est rate en­vi­ron­ment this year, so if the Re­serve Bank con­tin­ues to hike rates this would put more pres­sure on al­ready con­strained con­sumers, and that will be neg­a­tive. Other sur­prises could arise from how ag­gres­sively the new banks en­ter the mar­ket,” says Botha.

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