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Nedbank’s share price soars on strong interims

Pays a healthy dividend ahead of market expectations.

JOHANNESBURG – Nedbank’s share price jumped by more than 4% yesterday, as Old Mutual Plc’s banking subsidiary reported earnings ahead of market expectations, declaring an interim dividend of 537 cents, up nearly 17% on the previous period.

For the six months to June 30 2015, Nedbank reported a 15.7% climb in headline earnings to R5.3 billion. Return on equity (ROE) climbed to 16% from 15.1% in the previous period. 

Zwelakhe Mnguni, chief investment officer at Benguela Global Fund Managers, said Nedbank delivered results slightly ahead of market expectations.

Mnguni highlighted the stability in Nedbank’s credit loss ratio, which improved from 0.83% in June 2014 to 0.77% in June 2015, off the back of improved bad debt charges in its retail and business banking (RBB) division.

Relative to December, Nedbank shrunk its personal loan book by 8.3% to R17.6 billion. “This is the second or third reporting period over which it has shrunk,” said CEO, Mike Brown, noting that Nedbank would stabilise the book at more or less the current level.

Overnight loans grew 15% to R23.2 billion, while credit card lending climbed 11.4% to R14.1 billion. Home loans edged up 4% to R140 billion.

“We think the lending environment is going to remain difficult. At the moment, our consumer lending books are still improving: arrears are getting better, non-performing loans are coming down, but what we know is that interest rates are beginning to rise and inflation is beginning to increase, so we think it is going to get tougher for consumers,” Brown said.

Nedbank grew its main banked customer base by 8% to 2.5 million, growing group customer numbers 6% to 7.3 million.

Rival lender Capitec had 2.8 million primary bank clients at February 2015, maintaining its lead on Nedbank as the country’s fourth largest retail bank. Capitec has a total of 6.2 million active clients.

On the wholesale side of Nedbank’s business, Brown said books are in “really good shape” but that the tail risk in wholesale lending has increased, primarily given dramatic movements in commodity prices, which in turn has pushed up the risk of corporate defaults.

Advances for commercial mortgages grew 10.8% to R130 billion over the period, pushing wholesale lending ahead of retail lending. Nedbank’s wholesale business now accounts for 60% of its portfolio.

Rest of Africa

Rest of Africa headline earnings grew from R64 million for the six months to June 2014 to R344 million for the current period.

Nedbank said this was boosted by associate income of R436 million (June 2014: R11 million) from its 20% shareholding in Ecobank Transnational Incorporated, a stake it purchased in October 2014 for R6 billion.

“There is huge potential from Ecobank. It’s still early days but it’s good to see continuous improvement in ROE,” said Francois du Plessis, MD of Vega Asset Management said.

“One should also give credit to cost containment,” said Du Plessis, highlighting the 7.4% climb in expenses to R12.6 billion.

Mnguni said the surprise increase in Nedbank’s interim dividend places the stock on an annualised yield of about 4%. “I would think that it’s quite attractive from a valuations point of view,” he said

Mnguni said that from an overall market perspective, banks still looked relatively attractive delivering decent value for “a relatively stable stream of earnings”.

Brown expects Nedbank’s growth in diluted headline earnings per share (HEPS) to remain above nominal GDP growth of around 8% for the full-year.

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