Digital platform may turn out to be a jewel

The past financial year was a tough one for Sasfin, with headline earnings falling 38% to 381.2c a share. But this may well mark a floor in the earnings cycle.

The group’s wealth and capital pillars grew operating profits by 111% and 33% respectively — the former boosted by the favourable mark-to-market treatment of its stake in Efficient Group.

Banking — the largest contributor to earnings — posted a 46% drop in operating profit owing to increased impairments and defaults (+101%).

Operating costs were hit by some one-off costs associated with acquiring the ATFS rental book from Absa, further investment in the digital platform and other IT projects. However, a reversal of bonus provisions did lessen the increase in operating costs to only 14%.

I asked management for a handful of things that excite, and narrowed these down to the digital banking platform B\\yond, the group’s offshore and institutional asset management, asset finance and credit.

This banking platform is an intriguing product that helps

SMEs. It was launched in April 2018 and has been favourably received. It allows clients to apply online — upload documents and sign the application digitally, even with multiple shareholders and directors. The smart dashboards are built on intelligent account and transaction classification to manage revenue and expenses and to keep track of projects.

The offshore and institutional asset management hub last year reported a 32% increase in foreign income and institutional asset management fees. The uncertain political climate has increased demand for offshore products and offerings.

Safin holds a minority stake in Saxo Capital Markets South Africa (renamed DMA or Direct Market Access). This platform enables investors to trade or invest on global markets at competitive rates. Sasfin has just broken through R10bn of offshore assets under management — a significant milestone.

The group has attracted talented fund managers, and this has won it two Raging Bulls awards recently.

In addition, Wiphold holds a 25% stake in Sasfin, making the group one of the most empowered banking firms in the country in terms of ownership. Sasfin is working with Wiphold to leverage off its network.

In the asset finance department, Safin management believes the recent acquisitions of both Fintech and ATFS will add meaningful scale as well as further innovation and efficiencies to enhance profitability.

On the credit side, banking has historically been the biggest contributor to earnings.

It’s worth noting that the credit loss ratio has deteriorated markedly over the past few years. The state of the domestic economy will be a factor.

Sasfin management says the credit cycle remains tough — though it has not deteriorated over the past six months.

Trading on a trailing earnings multiple of 7.8 times, the share is a buy as a geared play on a recovery in the domestic economy, I believe. B\\yond may well be the jewel in years to come if SA gets serious about job creation and encourages entrepreneurs. Nigel Dunn