Nedbank wipes off R2bn market cap after reporting recession-like pressures hurt profits
Nedbank said its earnings took a knock on impairment charges and the country's stagnant economy, which forced households to withhold finances and curtail credit demand.
Nedbank chief executive Mike Brown said South Africa’s estimated economic growth of 0.3 percent in 2019 was much slower than initially expected due to the severity of frequent power outages, the unsustainable fiscal trajectory and ongoing policy uncertainty combined with a deteriorating global outlook.
“Under these difficult domestic conditions, company profits and household finances deteriorated during the year,” Brown said.
Nedbank said its impairment charges increased 66.2 percent to R6.1bn, with rising defaults in the retail bank as well as in corporate and investment banking.
Revenue rose 2.5 percent to R56bn while expenses grew 1.7bn to R32bn.
The group declared a final dividend of 695 cents compared with last year's 720c, but warned that it expected the country's economic situation to remain constrained at 0.7 percent for 2020 on power cuts and global conditions as a result of the coronavirus.
Chief operating officer Mfundo Nkuhlu said the bank's performance was compounded by hyperinflation in Zimbabwe. “The results were disappointing and were certainly below our expectations,” Nkuhlu said.
Nedbank shares fell 7.6 percent to R161.69 in early trade before clawing back the losses to close 2.28 percent lower at R171.01.
Nkuhlu said Zimbabwe’s hyperinflation grounded the group’s overall headline earnings by R186 million, while the increase of its shareholding in Banco Unico in Mozambique took a further R140m.
“In our Nedbank Africa regions, we hit a perfect storm after growing our headline earnings by 7 percent last year,” Nkuhlu said. “However, the region reported a decline of 35percent in headline earnings this year impacted by the hyperinflation in Zimbabwe.”
Nkuhlu said the Banco Unico investment provided the group with an opportunity to gain control in running the business.
He said Ecobank contributed R668m in its earnings during the period, but headline earnings per share declined 6.7 percent to 2 605c a share.
Nesan Nair, a senior portfolio manager at Sasfin Securities, said the results were weaker than the market anticipated.
“The results were a little disappointing, I would say as a result of higher impairments and a weak outlook statement perhaps contributing to the 6 percent fall on its share price during the day,” Nair said.
Jordan Weir, a trader at Citadel, said Nedbank Group’s results came in lower than the market expectations.
“This is largely attributed to the fact that South Africa’s economy shrunk in 2019 by more than what analysts had predicted. In the wake of the current weak economic environment, Nedbank has experienced an increase in the number of bad debts, paired with less overall spending and borrowing from South African consumers,” Weir said.