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Nedbank slashes Ecobank value by R3.8bn

Bank says heps at 2 350 cents in the year ended December 2016.

JOHANNESBURG – South Africa’s Nedbank booked a $293 million writedown on the value of its stake in sub-Saharan lender Ecobank on Tuesday and reported its slowest growth in annual profit since 2009.

Ecobank Transnational Inc’s operations in central and west Africa are exposed to some economies that have been pressured by the commodity price slide and unfavourable currency swings since Nedbank bought a 20% stake for $500 million in 2014.

The writedown reduces Ecobank’s value on Nedbank’s books to R4 billion ($308 million) from R7.8 billion, the South African lender said in a statement.

Nedbank said, however, that Ecobank remained vital to its expansion elsewhere on the African continent, where Ecobank has operations in nearly 40 countries outside its home market.

“It’s obvious that we would be disappointed with the performance of our Ecobank investment to date,” Nedbank chief executive Mike Brown told reporters.

“But we still, however, remain optimistic on the long-term growth prospects in the rest of Africa.”

Brown forecast another tough year for Ecobank, which makes the bulk of its earnings in Nigeria, before improving in 2018 and beyond. Nigeria, Africa’s biggest economy, has been hit by a currency crisis and its first recession in 25 years following the slide in oil prices since the middle of 2014.

Shares in Nedbank were little changed at R244 at 1300 GMT, more than 40% below where they should trade based on the most likely earnings trajectory, according to Thomson Reuters StarMine intrinsic valuation model.

Nedbank, a subsidiary of Anglo-South African conglomerate Old Mutual, said its diluted headline earnings per share (EPS) rose 4.8% to 2 350 cents in 2016, the slowest pace of growth since 2009 when its EPS fell by nearly a third.

Headline EPS is the main measure of profit in South Africa as it strips out certain one-off items.

Nedbank also said its results were affected by slack demand for loans as slowing economic growth and higher interest rates hit consumption and investment spending across Africa.

Brown forecast at least 7% growth in 2017 annual headline EPS, saying a peak in interest rate cycle in South Africa would lift demand or loans.

Old Mutual is in the middle of an overhaul in which it will carve itself into four parts and cut its 54% stake in Nedbank to a minority holding to simplify its structure.

Nedbank competes with Standard Bank, FirstRand , Barclays Africa and Capitec. ($1 = R12.9811)

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