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RMB Holdings (RMH) will be the stock in focus: (Price at time of writing: R52.83) - Date: 7 May 2016
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Background and overview of RMB Holdings (RMH)
Not much to say about RMH, except that they own 34% of listed group FirstRand (FSR). FSR in turn owns a number of well known financial services entities. They include:
So our review while looking at RMH, will be based solely on the financial results of the FirstRand (FSR) group. In should also be noted that Remgro owns a substantial chunk (28.2%) of RMH
*Note RMH announced earlier in the week that they will be buying a 25% stake in Atterbury Property Holdings (who built the Mall of Africa)
- FNB - Retail Bank
- Rand Merchant Bank - Corporate and investment bank
- Wesbank - Installment finance business
- Ashburton Investments - Investment management business.
So our review while looking at RMH, will be based solely on the financial results of the FirstRand (FSR) group. In should also be noted that Remgro owns a substantial chunk (28.2%) of RMH
*Note RMH announced earlier in the week that they will be buying a 25% stake in Atterbury Property Holdings (who built the Mall of Africa)
Scroll over or click on the funnel chart to get more details of FSR's latest financial results
Financial review:
As mentioned above, since RMH's sole holding is a 34% stake in FSR, we will evaluate FSR's financial results and determine the investment case for RMH based on FSR's financial results. FSR showed very strong results for the 6 months ended 31 December 2015, with a net profit margin of around 33%. That is an extremely strong net profit margin. The pie chart below shows the contributions of FSR's operating divisions to their turnover and profits.
Its clear from the pie chart that FNB is the main money spinner for the FirstRand group, contributing 56% of the group's total profits, while RMB brings in just over 25% and Wesbank around 17%. Ashburton and other activities brings in just under 2% of total profits. What FSR and all banks for that matter has to take into account is the rising interest rate cycle and the impact this will have on consumer's ability to pay back their loans, be it home loans, vehicle loans, personal loans etc. And less money to pay loans back will imply less money to invest, so RMB and Ashburton will feel the impact of this too.
Non performing loans (NPL's) are sitting at just over 3% of total loans issued. This has started to trend upwards as 6 months earlier this ratio was just under 3% and it will only get worse as high inflation eats into disposable income and the cost of debt starts increasing.
We therefore need to caution investors in either FSR or RMH (and all banks for that matter), that the percentage of non performing loans will increase and these losses will have to come through the income statement and that will put pressure on their earnings/profits.
Non performing loans (NPL's) are sitting at just over 3% of total loans issued. This has started to trend upwards as 6 months earlier this ratio was just under 3% and it will only get worse as high inflation eats into disposable income and the cost of debt starts increasing.
We therefore need to caution investors in either FSR or RMH (and all banks for that matter), that the percentage of non performing loans will increase and these losses will have to come through the income statement and that will put pressure on their earnings/profits.
Valuation:
We like FSR's assets, and feel the company is well run and covers all the major financial services. The question is whether its worthwhile buying the holding company RMH, instead of just buying FSR shares directly? In order to justify buying the holding company instead of the operating entity, the holding company's share price has to offer a significant discount to make it worth investors while.
Based on FSR's current share price, the value of RMH's investment in FSR is worth R57.35 a RMH share, while the shares are currently trading at R52.83. Representing a discount of just under 8%. Based on our valuation of FSR, its worth R61.74 per RMH share, offering a discount of 14.4% based on our valuation of FSR. We feel RMH offers a decent enough discount to their value (based on the quality of their assets) and would therefore call it a buy.
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.
Based on FSR's current share price, the value of RMH's investment in FSR is worth R57.35 a RMH share, while the shares are currently trading at R52.83. Representing a discount of just under 8%. Based on our valuation of FSR, its worth R61.74 per RMH share, offering a discount of 14.4% based on our valuation of FSR. We feel RMH offers a decent enough discount to their value (based on the quality of their assets) and would therefore call it a buy.
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.