Market satisfied that Barclays Africa has turned the corner

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BR Barclays 5170

Independent Newspapers

Barclays Africa chief executive Maria Ramos. The bank's share price is rising after a tough 18 months. Photo: Simphiwe Mbokazi

Johannesburg - The Barclays Africa Group share price edged upwards last week following the release of results for the 12 months to December last year.

The market seemed reasonably satisfied that, after a particularly tough 18 months, the group was moving in the right direction.

The share price ended the week at R130.30, which was slightly above its 12-month low of R124 reached a week earlier but significantly below the 12-month high of R165.50 reached in March last year.

The need to take extensive write-offs on its home loan book, concerns about the stability of its senior management team and the management time and energy required to implement the sprawling acquisition by Absa of the bulk of Barclays’s African operations, have been key factors holding back the performance of the share for much of the past 12 months.

The regulatory part of the acquisition has been completed, write-offs on the home loan book were minimal in financial 2013, and in recent months there have been no stories of executive departures.

Group chief executive Maria Ramos should be feeling a little more relaxed than she was a year ago, and considerable more relaxed than her “boss” at Britain’s Barclays, Antony Jenkins.

Unlike its British parent, Barclays Africa was able to report an increase in earnings at the same time as it announced a hike in bonuses. And Barclays Africa has not announced any plans for job cuts.

By contrast, the UK-based holding company last week announced lower profits, extensive job cuts and increased bonuses. This managed to irritate three important interest groups simultaneously – shareholders, the government and the public.

And although the 15.5 percent return on equity (RoE) achieved by Barclays Africa is likely to be lower than the returns recorded by the other three major local banks, it is ahead of the levels achieved by Barclays, which is struggling to get its RoE back anywhere near 10 percent.

Having lifted RoE from 14.1 percent in financial 2012, Barclays Africa has set a three-year target of 18 to 20 percent.

Johann Scholtz of Afrifocus Securities describes this target as “ambitious” given the “uncertain macro environment with the distinct possibility of the credit cycle turning negative”. He expects an RoE of around 16 percent by financial 2016 and his through-the-cycle RoE estimate is about 19 percent. “There are not many banks around the world that generate this level of profitability that one can buy for 1.4 times book and returning a 7 percent dividend yield.”

Management will be watching closely its exposure to unsecured lending through Edcon. In financial 2013, Barclays Africa took a charge of just over R1 billion against the Edcon portfolio. This compares with the R1.5bn against home loans, down from the crippling R4.5bn charge in 2012.

Last week’s trading statement from JD Group highlighted the impact of the growing pressure facing consumers and likelihood that credit-based retail sales will decline in the months ahead. - Business Report


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