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NedBank (NED) will be the stock in focus: (Price at time of writing: R172.32) - Date: 9 May 2016
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Background and overview of Nedbank (NED)
Nedbank Group is a diversified financial services provider offering a wide range of wholesale and retail banking services as well as insurance, asset management and wealth management solutions. Nedbank operates under a federal operating model, delivering our products and services through four main business clusters, providing our clients access to financial services in 39 countries across Africa.
We have a vision-led, values-driven philosophy to leading and managing our business, because how we achieve our vision is as important to us as what we achieve.
With a view to being most admired by our stakeholders, our Deep Green aspirations and targets strongly influence our planning up to 2020 and for the long term. To remain successful in banking over the long term the socioeconomic context in which we operate, matters enormously. Our recognition of the systematic interdependencies between economic success, societal wellbeing and environmental health led us to develop a set of eight Long-term Goals for SA to achieve by 2030. The Long-term Goals define the areas where we can best grow our bank, as well as areas where we have to tilt away from in order to contribute to a thriving society. These are predominantly about how we deploy our financial capital. In response to these, we developed our Fair Share 2030 strategy.
For more information see http://www.nedbank.co.za/
Nedbank is currently the fourth largest retail bank in South Africa, and is being hotly pursued by Capitec Bank who might take over as the fourth biggest retail bank (in terms of market capital) very soon, considering Capitec's strong share price growth over the last five to ten years.
We have a vision-led, values-driven philosophy to leading and managing our business, because how we achieve our vision is as important to us as what we achieve.
With a view to being most admired by our stakeholders, our Deep Green aspirations and targets strongly influence our planning up to 2020 and for the long term. To remain successful in banking over the long term the socioeconomic context in which we operate, matters enormously. Our recognition of the systematic interdependencies between economic success, societal wellbeing and environmental health led us to develop a set of eight Long-term Goals for SA to achieve by 2030. The Long-term Goals define the areas where we can best grow our bank, as well as areas where we have to tilt away from in order to contribute to a thriving society. These are predominantly about how we deploy our financial capital. In response to these, we developed our Fair Share 2030 strategy.
For more information see http://www.nedbank.co.za/
Nedbank is currently the fourth largest retail bank in South Africa, and is being hotly pursued by Capitec Bank who might take over as the fourth biggest retail bank (in terms of market capital) very soon, considering Capitec's strong share price growth over the last five to ten years.
Scroll over or click on the funnel chart to get more details of NED's latest financial results
Financial review:
Nedbank had a solid financial year, with profit for the period increasing by 9.6% compared to the previous period. While this may not sound like a lot, its not bad considering the sector they are in, and the strain consumers are facing in paying back all of their debts. Their net profit margin is sitting around 27% which is a very strong showing. While not as high as fast growing Capitec Bank, it is more than respectable.
The graphic below shows the contribution of Nedbank's main income streams to their total income, What is clear from the graphic is that a massive chunk of Nedbank's income comes from two divisions (Business Banking and the Vehicle finance arm, MFC).
As can be seen from the pie chart above, a major source of Nedbank's income comes from their vehicle finance arm, Motor Finance Corporation (MFC). The worry with regards to this is the slowing vehicle sales in South Africa. This will surely have an impact on Nedbank's profitability as they do seem a little reliant on that as source of income. Ideally as a bank we would like to see a bigger part of their profits coming from home loans. Other than that it does look like most of Nedbank's divisions are contributing to their profits. Its just the size of MFC's contribution that has a little worried.
Nedbank states in their results that the impairment charges on loans and advances came in at R4,8billion, (which reflects an increase of 6.8% compared to the previous period). Investors should take note of this and keep an eye on this figure, as sluggish economic growth and rising interest rates is sure to push this figure up (as we mentioned in our Capitec analysis too).
Nedbanks diluted basic earnings per share came in at just over R22 a share, placing them on a relatively cheap PE ratio of 7.8. Market probably pricing in slower growths in profits, implying a higher forward PE as future earnings are expected to be a lot lower.
Nedbank states in their results that the impairment charges on loans and advances came in at R4,8billion, (which reflects an increase of 6.8% compared to the previous period). Investors should take note of this and keep an eye on this figure, as sluggish economic growth and rising interest rates is sure to push this figure up (as we mentioned in our Capitec analysis too).
Nedbanks diluted basic earnings per share came in at just over R22 a share, placing them on a relatively cheap PE ratio of 7.8. Market probably pricing in slower growths in profits, implying a higher forward PE as future earnings are expected to be a lot lower.
Valuation:
While the consumers in South Africa are under pressure, there seems to be little stopping them from taking on more and more debt. While it is a good thing for Capitec, rising interest rates will put a damper on future earnings as bad debts are sure to start climbing steadily.
We therefore feel at its current share price (R172.32) and its latest financial results, Nedbank is offering decent value, even if Nedbank's future earnings are expected to be lower due to rising interest rates cycle and squeezed consumers. We value Nedbank at between R196 and R198 a share.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We therefore feel at its current share price (R172.32) and its latest financial results, Nedbank is offering decent value, even if Nedbank's future earnings are expected to be lower due to rising interest rates cycle and squeezed consumers. We value Nedbank at between R196 and R198 a share.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.