[TOP STORY] Nedbank update promises good earnings

Carmen Mpelwane from Absa Asset Management also looks at how Spar, Capitec, FirstRand and British American Tobacco are faring.

SIMON BROWN: I’m chatting now with Carmen Mpelwane, portfolio manager at Absa Asset Management. Carmen, morning. I appreciate the early morning time. The Nedbank update, was actually [out] after the close on Monday. But the stock went soaring yesterday. A strong update, adding fuel to the theory that that our banks are offering value – some more than others, but certainly good earnings are going to be coming through.

Read: Nedbank set for even stronger FY performance

CARMEN MPELWANE: Morning, Simon. Definitely. I mean, Nedbank’s initial guidance was for above 90% for the Heps growth, but … between 108% or 118% was the updated guidance. So a significant beat, number one – significantly above what consensus was looking for. We saw that in the share price reaction [it] closed up 3.5%.

As you rightfully said, it seems that there are improving conditions specifically in South Africa, which is where Nedbank gets most of its revenue. So I think this bodes well for the other banks that have most of their operations in South Africa, being Capitec and FirstRand … [inaudible]. They’ve had less of an unwind of their provision. So they still have that in their back pocket and that’ll give them sort of a tailwind as they release that in the future.

SIMON BROWN: I take your point on that, and particularly the locals. I’m looking at the banking index. We are still off those highs from 2018, but we’ve recovered markedly off the pandemic close.

The Spar trading update – it wasn’t shooting the lights out. The price responded fairly well. I suppose it was generally positive and certainly some divisions, liquor of course, doing well. Poland is moving in the right direction. That’s perhaps the kindest thing we can say about Poland.

CARMEN MPELWANE: Yeah. Like you said, I think it’s probably been the laggard in the food retailers over the last 18 months. A lot of that has come off the fact that when you go to a Spar, you’re going to Spar because you’re going to Tops. And because liquor restrictions were there, there was just not the same sort of footfall that they’ve had, so definitely on the back foot for them in South Africa, and we saw them come through in their core Spar number, which was only up 3.7%, showing us that they’re definitely losing market share when we compare them to Shoprite and Woolies as well.

Read:
Spar’s alcohol sales jumped 56% as SA lifted Covid ban

28 Spar stores still closed from July unrest, some to never reopen

Then, as you said, Poland has been the sort of thorn in the side for the longest time. We thought they’d break even a long time ago, but unfortunately that hasn’t happened, most likely because of the pandemic as well. But definitely I think the information related to the change in contracts in Poland, and therefore putting a minimum retailer loyalty is likely to see that turn around slightly. So definitely a boost for them. And, being the laggard, it was up 3.7% yesterday.

SIMON BROWN: A quick last question. British American Tobacco – no news out from them doing some share buy-backs and the like. The stock has really started to run after going almost nowhere. Is this just in essence value coming through? A lot of the market commentators I’ve spoken to over the last year say, yeah, this is a great-looking share. It just wasn’t doing anything, went from R520 sort of in the last quarter of last year to R706 yesterday.

CARMEN MPELWANE: Yeah. We’ve been waiting for this for a long time. It just flatlined over the pandemic. But I think a lot of the US regulation that has come through for them, specifically for their US products has given some positive for the stock. Maybe investors are looking for where value is; this being cheap by relative valuation it probably has garnered some more interest for the stock.

SIMON BROWN: Yes, and of course the sterling dividend. But I think the key point there is sometimes investing is about waiting, and sometimes that wait takes forever.

Carmen Mpelwane, portfolio manager at Absa Asset Management, I appreciate the early morning this morning.

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