Bad-debt cost scuppers Sasfin interim dividend
Niche business bank and asset manager Sasfin has decided to pass on paying an interim dividend due to higher credit impairments from its largely small and medium business client base, which have struggled through the economic storm created by the Covid-19 pandemic.
Sasfin specialises in lending to and facilitating transactions for low-turnover businesses.
“We felt it didn’t make sense to pay a dividend as a result of the lower profits. The real question is going to be how the arrears play out over the next few months,” said Sasfin CEO Michael Sassoon.
While the group’s income held up well in the six months to end-December 2020, falling just 1% to R633m against that of the previous matching period, the total charge for bad debt rose 185% to R130m, the main contributor to the group’s 65% fall in headline earnings per share.
From the perspective of tracking performance of companies in the bank’s loan books, Sassoon said the economic recovery continues to be very mixed and based generally on what industry the client is active in. “Roughly 80% of businesses are generating slightly lower revenue than they did before Covid-19; 10%-15% of businesses are really struggling as evidenced by a sharp drop in revenue and financial distress. Five percent, like those serving the mining industry and commodity markets, are doing really well; their numbers look better than ever,” said Sassoon.
The bank’s lending book fell 13.5% due to tighter lending criteria, which contributed to lower lending volumes. Sassoon said the group invested in its collections capability and expects the amount of arrears to decline over time.
Sasfin Wealth, which comprises an asset management, portfolio management and stockbroking offering, continues to perform well. Assets under management and advice grew 10% to R51.8bn during the period, boosting the division’s profit 82% to R56.5m.
Sassoon said the group is considering opportunities in the private market space as equity markets continue to shrink in scope as delistings grow on the JSE and other exchanges around the world. Sassoon said there could be an opportunity for the group to develop a private equity product using its credit expertise. The group’s investment in its digital, transactional, business banking franYond, continues to develop according to plan, but remained unprofitable during the period.
Sasfin will continue to invest in its distribution capability in the short term. “We think it is very competitive and we need to unlock the opportunity by investing in distribution, which will comprise adding bankers as well as third-party relationships,” said Sassoon.
“We would also like to complement the online capabilities we have by digitalising the credit and foreign exchange offering.”
Sasfin’s share price was 1.54% lower at R18.55 per share at close of trade.
THE REAL QUESTION IS GOING TO BE HOW THE ARREARS PLAY OUT OVER THE NEXT FEW MONTHS