THE BOTTOM LINE
How FirstRand continues to tear Standard Bank a new one
Growing in the local market at a lower cost is the trick, as FNB has shown. Investors seem to like it
The FirstRand share price is up 2.6% for the year so far, with a clear edge on Standard Bank which has dropped 8.5%. FirstRand also has a significantly bigger market capitalisation of about R387bn, nearly R100bn more than Standard Bank’s.
FirstRand’s share price strength is easily explained. It delivered a double-digit rise in headline earnings per share of 12.5% for the year to end-June. Standard Bank, although in fairness only reporting half-year results to June, delivered a more meagre 5%. The market seems to be taking the view that Standard Bank’s full year headline earnings will lag FirstRand’s.
FirstRand also delivered a 23% return on equity.
And while FirstRand was talking about “delivering real growth in earnings” in the future, Standard was more cautious speaking about “pressure on revenue” due to the strained local economy.
The market clearly believes FirstRand has the edge through First National Bank while Standard has proven that growing in the local market does not necessarily translate into higher earnings. Doing it at a lower cost is the trick, as FNB has shown.
That is why the market also remains sceptical about Absa’s new foray into the local market, looking at growing its lending, while expanding further into the rest of Africa. Absa is down 16% in 2018 and has been surpassed by Nedbank in terms of market capitalisation. Absa’s market value is at present R129.3bn, while Nedbank’s is R132.7bn.
Nedbank has improved its act considerably, delivering headline earnings per share growth of 26.3% in the half year to end-June. However, the green bank was somewhat flattered by a rebound from a low base in its African operations.