South African banks face another challenging year‚ with the likelihood of the Reserve Bank raising interest rates and possible further downgrades of this country’s sovereign credit rating making their access to capital more expensive.
Banks had a torrid 2015 with the index ending the year 16.34% weaker. Even troubled resources outclassed banks‚ with the mining index ending last year 10.1% down.
Nedbank led last year’s losses in the banking big four‚ shedding 24.25%‚ followed by Barclays Africa losing 21.16%. Standard Bank was 20.89% off‚ with FirstRand the best domestic performer‚ closing the year 16.22% lower.
Banks were especially hard-hit by foreign selling after President Jacob Zuma’s surprising and short-lived appointment of Desmond van Rooyen as finance minister after firing Nhlanhla Nene. Some of the damage has been undone‚ but analysts say conditions remain adverse‚ despite Pravin Gordhan’s reappointment as finance minister.
Momentum SP Reid analyst Steve Meintjes said local banks were soundly financed and conservatively managed. “This seems to have been overlooked by global investors in the fear of ratings downgrades following the Van Rooyen debacle‚” he said.
Banks have been solidly re-rated since the end of November. From average price-to-earnings of about 14 in the first half‚ most are between 10 and below eight now. Capitec‚ at 21‚ is the exception. Its share price grew 58.4% last year.
FirstRand remains the strongest performer among the bigger banks at a price-earnings ratio of 10.64. The First National Bank division continues to deliver topline growth and profitability.
Meintjes said FirstRand deserved to be the most highly rated among the big four and was likely to retain the edge in earnings growth for the next three years.
But Standard Bank at a price-earnings ratio of 9.15 could be a better entry point. Its recent weakness had more than discounted the deterioration in the global and local economic climate‚ Meintjes said. “Standard remains sound with plenty of growth expected, based on recent massive IT spending‚ ongoing growth in Africa and the growth of ICBC Standard Bank as a European base for the expected increase in Chinese renminbi transactions.”
Most of the focus this year could be on Barclays Africa‚ trading at a 8.4 price-earnings ratio and still operating under the Absa retail franchise. Holding company Barclays is reported to be considering selling its African interests. If it does, black economic interests are expected to be in the front row.
Nomura analyst Peter Attard Montalto does not discount a local consortium of the Public Investment Corporation‚ local development banks and empowerment investment funds making a bid. State-backed retail banking had long been a goal of the ANC but had been “unachievable with the available resources”.
Nedbank is the runt in the pack‚ at a price-earnings ratio of 9.7. Earnings growth remains relatively strong‚ with the Econet contribution pushing the African earnings of the bank towards the 10% mark.
Battered banks face tough year
Banks had a torrid 2015 with the index ending the year 16.34% weaker. Even troubled resources outclassed banks‚ with the mining index ending last year 10.1% down.
Nedbank led last year’s losses in the banking big four‚ shedding 24.25%‚ followed by Barclays Africa losing 21.16%. Standard Bank was 20.89% off‚ with FirstRand the best domestic performer‚ closing the year 16.22% lower.
Banks were especially hard-hit by foreign selling after President Jacob Zuma’s surprising and short-lived appointment of Desmond van Rooyen as finance minister after firing Nhlanhla Nene. Some of the damage has been undone‚ but analysts say conditions remain adverse‚ despite Pravin Gordhan’s reappointment as finance minister.
Momentum SP Reid analyst Steve Meintjes said local banks were soundly financed and conservatively managed. “This seems to have been overlooked by global investors in the fear of ratings downgrades following the Van Rooyen debacle‚” he said.
Banks have been solidly re-rated since the end of November. From average price-to-earnings of about 14 in the first half‚ most are between 10 and below eight now. Capitec‚ at 21‚ is the exception. Its share price grew 58.4% last year.
FirstRand remains the strongest performer among the bigger banks at a price-earnings ratio of 10.64. The First National Bank division continues to deliver topline growth and profitability.
Meintjes said FirstRand deserved to be the most highly rated among the big four and was likely to retain the edge in earnings growth for the next three years.
But Standard Bank at a price-earnings ratio of 9.15 could be a better entry point. Its recent weakness had more than discounted the deterioration in the global and local economic climate‚ Meintjes said. “Standard remains sound with plenty of growth expected, based on recent massive IT spending‚ ongoing growth in Africa and the growth of ICBC Standard Bank as a European base for the expected increase in Chinese renminbi transactions.”
Most of the focus this year could be on Barclays Africa‚ trading at a 8.4 price-earnings ratio and still operating under the Absa retail franchise. Holding company Barclays is reported to be considering selling its African interests. If it does, black economic interests are expected to be in the front row.
Nomura analyst Peter Attard Montalto does not discount a local consortium of the Public Investment Corporation‚ local development banks and empowerment investment funds making a bid. State-backed retail banking had long been a goal of the ANC but had been “unachievable with the available resources”.
Nedbank is the runt in the pack‚ at a price-earnings ratio of 9.7. Earnings growth remains relatively strong‚ with the Econet contribution pushing the African earnings of the bank towards the 10% mark.
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