FirstRand’s earnings guidance outlook dims
The group’s chief says it’s not immune to the macroeconomic challenges, which was expected to deteriorate
FIRSTRAND yesterday signalled that it might miss its earnings guidance for the year to end June as South Africa’s economy is mired in a technical recession and the outlook deteriorates.
The country entered into a technical recession after it reported a 1.4 percent contraction in the economy in the fourth quarter of 2019. The group said yesterday that the South African macroeconomic environment would continue to deteriorate, probably at a faster rate than in the first half.
“GDP (gross domestic product) is expected to contract further, firstly driven by the impact of the global Covid-19 outbreak, which will result in lower exports and supply chain disruptions, and secondly by weaker wage growth which translates into weaker consumer spending,” the group said.
Chief executive Alan Pullinger said as a large systemic financial services group, FirstRand was not immune to the serious macroeconomic challenges facing South Africa and the damaging impact of ever-declining GDP growth was becoming evident in all of the group’s customer segments.
“Given the expected pressures on top line the group appreciates the need for ongoing cost efficiencies, balanced with continued investment in sustainable growth strategies,” Pullinger said.
FirstRand yesterday reported a 5 percent increase in normalised earnings to R14 billion for the six months to end December, with a normalised return of equity of 21.2 percent.
Its basic and diluted normalised earnings per share increased by 5 percent to 249.7 cents a share while basic and diluted headline earnings per share also increased by 5 percent to 249.4c.
The group declared a 5 percent increase in interim dividend to 146c.
Pullinger said that this was a commendable performance and testament to the strength of the portfolio and the quality of the strategies executed by FNB, RMB, and WesBank in South Africa and the broader region.
FNB, the group’s largest earnings contributor, grew its earnings by 5 percent to R9.2bn as customer gains and transactional volumes lifted non-interest revenue (NIR), and it continued to grow deposits.
FNB grew its NIR by 7 percent during the period, resulting in a 5 percent growth for the group to R25.9bn.
The group also reported an 8 percent growth in normalised net interest income to R31.9bn.
RMB reported a 6 percent increase in earnings to R3.5bn, benefiting from strong growth in markets and structuring and healthy overall client annuity income. The group said this was achieved despite investing activities being down by 46 percent due to the non-repeat of private equity realisations, with the business continuing its investment cycle.
“The rest of Africa portfolio remains key to RMB’s growth strategy, producing pre-tax profits of R1.1bn, up by 29 percent compared to last year and contributing 23 percent of RMB’s overall pre-tax profits,” the group said.
WesBank marginally increased its normalised profit before tax by 1 percent to R1.4bn and Aldermore’s operating profit before tax increased by 5 percent to £71.6 million (R1.51bn), excluding the impact of a loan portfolio hedge, driven by strong growth in invoice finance, residential mortgages and SME commercial mortgages.
FirstRand shares closed 4.25 percent higher at R52.26 on the JSE yesterday.