Absa plunges 9.5% after cautioning about fall in interim earnings

Absa cautioned that it was now expecting to report a return on equity of around 14% for the period, down from 15.7%. SUPPLIED.

Absa cautioned that it was now expecting to report a return on equity of around 14% for the period, down from 15.7%. SUPPLIED.

Published Jun 28, 2024


Shares in Absa Group fell by about 9.5% in afternoon trade on the JSE yesterday after the financial institution warned of a plunge in headline earnings for the half year period to the end of June.

Absa stocks opened trade yesterday 5% weaker in early morning trade before proceeding to weaken further during intraday trade.

Analysts had expected Absa’s stocks to pare some of its value following the release of a trading update on Wednesday that reflected lower interim earnings for the period to end June.

“We expect Absa Group’s headline earnings to decrease by mid to high single digits in the first half of 2024, with earnings expected to decline by high single digits to low double digits,” the banking group, with operations in South Africa and the region, said on Wednesday.

As yesterday’s trade session wore on, losses in the company’s shares climbed. At 4pm, Absa was trading 9.48% lower, at R153.87 per share.

In the past seven days, shares in Absa were 3.81% lower.

Its peers, Standard Bank and and FirstRand, were also trading marginally weaker by 0.36% and 1.02%, respectively, towards the close of yesterday’s trading.

Market analyst Martin Rodgers, said Absa was “biggest loser” for the day as it slithered down in value on its “trading update” a day earlier.

“Share price at the same level before the announcement of the Government of National Unity on the 14th of June. Disappointing first half of 2024 with a weaker-than-expected guidance for the remainder of the year,” he said.

Rodgers added that Citi “didn't take long to cut Absa to neutral with a target price of R170 – currently trading at R156.70” on trading update.

Another analyst, Marlie Chunger, noted that Absa “responds differently to high rate environment” than most SA banks.

Absa cautioned that it was now expecting to report a return on equity of around 14% for the period, down from 15.7%.

“Given a strong group common equity tier 1 capital ratio at the top end of our board target range, we expect to declare a flat interim dividend per share,” it added.

The group expects revenue and operating expense growth to be up by mid single digits for the interim period under review, producing a broadly similar cost-to-income ratio to 2023’s 53.2%.

Absa has previously warned that “elevated credit impairments plus slower revenue and pre-provision profit growth would dampen first half earnings off the higher prior year” base.

Nonetheless, the banking group is still anticipating an improvement in the second half of the year in terms of revenue growth, which would provide support for stronger pre-provision profit growth.

Combined with a lower credit loss ratio in the second half compared to the period under review, this was likely to support better second half earnings growth off a relatively low base in the comparable second half period of 2023.

In February, Moody’s highlighted that South African banks will struggle with rising non-performing loans this year as consumers suffer from narrowing savings and elevated interest rates.

It said South Africa would have to balance out macroeconomic and asset risks through issuance of loss-absorbing instruments.

“High interest rates, subdued growth and narrowing savings buffers will weaken borrowers' repayment capacity. Unsecured consumers loans are particularly exposed,” Moody’s said in its Banking System Outlook report for South Africa.