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Standard Bank (SBK) will be the stock in focus: (Price at time of writing: R117.75) - Date: 9 May 2016
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Background and overview of Standard Bank(SBK)
Standard Bank is the largest retail bank in Africa, offering a wide variety of financial services, from home loans to vehicle finance to private banking and investment management services. They currently provide 30% of all home loans issued in South Africa. Standard Bank Wealth is the largest pension fund administrator and asset manager in Nigeria (the most populist nation on the African continent).
In recent years they sold off all non core assets (in Russia, Brazil and UK) to focus on their main vision which is being the main financial services provider on the African continent. More information on Standard Bank can be found at www.standardbank.co.za
In recent years they sold off all non core assets (in Russia, Brazil and UK) to focus on their main vision which is being the main financial services provider on the African continent. More information on Standard Bank can be found at www.standardbank.co.za
Scroll over or click on the funnel chart to get more details of SBK's latest financial results
Financial review:
Standard Bank had a very strong financial year, with profit for the period increasing by almost 30% compared to the previous period. That is extremely impressive growth in earnings. But when you dig deeper and look at profit growth from continuing operations, growth is in fact only 5%. Profit from continuing operations up from just over R21billion to just over R22billion. Readers should not be swept up and fooled by headline grabbing growth figures like 30% increase in profits (as there are often sales of non core assets etc that helps boost profit figures). Looking at Standard Bank's net profit margin, it came in at 28.2% (which is slightly better than that of Nedbank).
The graphic below shows the contribution of Standard Bank's main income streams to their total income.
As can be seen from the pie chart above, the main contributor to Standard Bank's profits is their corporate and investment banking division. With their personal and business banking coming in a distant second place. In contrast to Nedbank where their vehicle finance made up a massive part of their earnings. One cannot help but wonder whether the investigations by the competition commission into the banking sector did not yield more results, especially when it comes to market allocation. As the more one looks at the banks, the more it looks like the money pie from financial services were nicely divided between the banks. Buts let not digress, and get back to the valuation of Standard Bank.
Standard Bank's earnings per share came in at R13.59 a share, placing them on a relatively cheap PE ratio of 8.7. Market probably pricing in slower growths in profits, implying a higher forward PE as future earnings are expected to be a lot lower. While Standard Bank's PE is low, Nedbank's is lower. Cash generated per share came in at R21.80 per share. Cash available came in at R75billion, or R45 per share. That is an extremely healthy balance sheet item.
Standard Bank reported credit impairment charges of R9.3billion (up 4% over the last 12 months from just over R9billion the year before). That is still relatively small considering that Standard Bank has just over R1trillion in loans and advances. So just over 0.9% of loans and advances are being written off via impairment charges.
Standard Bank's earnings per share came in at R13.59 a share, placing them on a relatively cheap PE ratio of 8.7. Market probably pricing in slower growths in profits, implying a higher forward PE as future earnings are expected to be a lot lower. While Standard Bank's PE is low, Nedbank's is lower. Cash generated per share came in at R21.80 per share. Cash available came in at R75billion, or R45 per share. That is an extremely healthy balance sheet item.
Standard Bank reported credit impairment charges of R9.3billion (up 4% over the last 12 months from just over R9billion the year before). That is still relatively small considering that Standard Bank has just over R1trillion in loans and advances. So just over 0.9% of loans and advances are being written off via impairment charges.
Valuation:
While the consumers in South Africa and surely in 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 Standard Bank that demand for credit is strong. The worry is the amount of credit impairments that will take place over the next 12 to 18 months as consumers struggle to pay back their outstanding loans.
We therefore feel at its current price (R117.75), and set of finacial results, Standard Bank is offering decent value, even if their future earnings are expected to be lower due to rising interest rates cycle and squeezed consumers and rising impairments on loans and advances. We value Standard Bank at between R132.50 and R134 a share. Standard Bank, like FirstRand and Nedbank offer value at current levels.
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 price (R117.75), and set of finacial results, Standard Bank is offering decent value, even if their future earnings are expected to be lower due to rising interest rates cycle and squeezed consumers and rising impairments on loans and advances. We value Standard Bank at between R132.50 and R134 a share. Standard Bank, like FirstRand and Nedbank offer value at current levels.
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.