FirstRand’s earnings rise pleases market

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Londiwe Buthelezi

Firstrand surprised the market yesterday with a trading update that said normalised earnings a share for the year to June were expected to increase by between 22 percent and 27 percent from R1.79 in the previous period, news that lifted its share price.

FirstRand said headline earnings were expected to increase by between 24 percent and 29 percent from R1.83 last year. However, earnings a share would not differ by more than 20 percent from last year if the non-recurring gain from the unbundling of the Momentum Group, which was disclosed in the 2011 results, was excluded. FirstRand will report its annual results on September 11.

Jean Pierre Verster, an analyst at 36One Asset Management, said the normalised earnings increase was slightly above expectations and pointed out that the vehicle financing division, WesBank, and retail bank FNB were the probable drivers of this growth.

“The results have once again shown that FirstRand is the leading bank of the big four at the moment because of its strong operational performance,” Verster said.

Standard Bank reported an 11 percent increase in headline earnings for the six months to June. Absa had a 6 percent decline in headline earnings while Nedbank achieved headline earnings growth of 25.1 percent in the same period.

Adrian Cloete, a portfolio manager at Cadiz Asset Management, said the consensus of analysts surveyed by I-Net Bridge was that FirstRand’s normalised headline earnings would increase by 20 percent.

“So it’s better than expectations. That’s why their share price is up,” Cloete said.

FirstRand’s shares closed 1.2 percent higher at R27.71.

Cloete noted that FNB and WesBank had driven FirstRand’s growth in the first half of the year, which was why analysts expected these two businesses to be responsible for the full-year growth. Motor financier WesBank’s earnings were up 59 percent in interim results posted in February, and FNB’s earnings were up 27 percent. Rand Merchant Bank (RMB) was down at the time.

“It is most likely the continued growth from the two divisions… People expected the second half to slow down slightly because of slow [economic] growth but obviously this didn’t happen to them,” Cloete said.

The vehicle financing market was doing well, as seen with Nedbank’s motor vehicle finance. But as WesBank was the dominant player in that market, Cloete said it was not surprising that it had done better.

RMB Holdings, in a separate trading update yesterday, said earnings a share for the year to June were expected to decrease by between 60 percent and 70 percent as this year’s results would only include its 34 percent interest in FirstRand and not the separately listed Rand Merchant Insurance Holdings.

Its headline earnings a share were, however, expected to increase by up to 5 percent from R2.94 in June 2011.

Verster said RMB came off a high base in the previous year and therefore its growth was not expected to be as high.

Meanwhile, Global Credit Ratings has affirmed Standard Bank’s national long-term rating at AA+.

So far, only Absa has an AA+ national long-term rating from one of the big three ratings agencies. Absa’s rating was assigned by Fitch Ratings, whose national long-term rating for Standard Bank is AA.

Fitch also rates the other two big banks, FirstRand and Nedbank, at AA, which is a notch lower than AA+.

Standard & Poor’s assesses Standard Bank’s long-term foreign currency counterparty credit rating at BBB+. The same goes for FirstRand.

All of the big four have an A3 rating for long-term foreign currency deposits from Moody’s Investors Service.


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