Research archive for FSR

Yesterday we had results from FirstRand which was a breath of fresh air compared to some of the other numbers we have been seeing. As a reminder, the FirstRand group comprises of FNB, RMB, Wesbank, Aldermore and Ashburton. An array of quality financial services businesses that cover most bases.

FirstRand and MMI, what happened there yesterday? The companies both issued new shares, a Reuters story titled S.Africa's FirstRand shares fall after new stock issued says that the stock was allocated to staff, an empowerment deal. In the Reuters story, an emailed answer: "Existing shares that were allocated to staff are being sold and new shares are being issued to normalise the NAV (net asset value)." The Business Day story titled FirstRand shareholders cash in R3.4bn. Ownership has been around 10 years since February 2005, is that at a corporate level a long time to be locked in and owning shares? My next question is, this specific windfall, how is it likely to impact on consumer spend, that is not nothing at all, that is a lot of money in the hands of not that many people.

This morning we had full year results from First Rand. There are lots of moving parts here so let's take a look at the structure of the business to get a better understanding. This image hacked from the results presentation pretty much sums it up.

There have been a few trading updates this morning, the biggest one from a market capitalisation point of view is undoubtedly from FirstRand. This is for the full year to end June 2012, and the update needed to be good. The stock is up 37 percent over the last 12 months, the trading update needed to be the very best. The company suggests to their shareholders that "diluted normalised earnings per share from continuing operations" is the most accurate when representing "operational performance".

This morning we had 6 month results for the period ending 31 December come out from First Rand. Fortunately they make things a lot less complicated following all the unbundles of those insurance assets. The business is less complicated. Here is what the results compromise.

We also saw a trading update from FirstRand. The company considers diluted normalised earnings per share from continuing operations as the most accurate measure of their operational performance. I did not say that, they did. And expectations are "expected for the six months to December 2011 to increase by between 24% and 28% from 81.1 cents (adjusted from 84.3 cents to exclude OUTsurance for the six months to December 2010) in the comparative period."

Yesterday we had Firstrand, the last of the big four banks to report year end results and yet again we saw some impressive numbers. But remember things are complicated with this one because we had the massive unbundling of the insurance businesses, Outsurance and Momentum. Fortunately we had their auditors doing the hard work and they have calculated the results which separate continued from discontinued operations. This presents the results on a normalised continuing basis as the group feels represents their economic performance most accurately.

There was an announcement from the fellows over at FirstRand that they would be taking a stake in a Nigerian bank, Sterling Bank. Sterling has 99 branches. Their loan book grew from 2009 to 2010 by around 30 percent in local currency terms, to around 100.6 billion Naira. Which is about 4.5 billion ZAR. So, about 30 percent of Capitec's book, that is what they are adding. The stock at current levels trades historically on less than 6 times earnings. Cheap? Yes. Not without a number of speedbumps, perhaps. Material? No. Potential? Yes! Check out their last set of financials, for the full year to end December, Dollar to Naira is around 155 for ease of exchange controls ---> Sterling Bank Plc. FY 2010 results.

We had during the course of the day managed to drag ourselves comfortably off the worst levels of the day, which were in the morning prior to European markets being open. Session end the Jozi all share index had lost nearly 39 points to 32298. Banks were lower by nearly 0.4 percent, led down by FirstRand, which closed down 1.85 percent to 1906. Sasol added 0.65 percent, but failed to lead the broader resource space out of the red, that index closed down 0.46 percent. I often wonder if any of this is useful? I mean, this all happened yesterday and has no bearing on the future whatsoever. Nothing. Ah well, we all like looking at the scoreboard, as a cricket nut I love looking at old cricket test scorecards. Don't ask why, I just do.

FirstRand in fact were the first bank to warn of the slowdown in June, June 10 to be exact: "As expected, revenue from banking activities remained under pressure. Net interest income in particular continued to be subdued as a result of low levels of borrowing due to the continued high indebtedness levels amongst retail customers. Corporate lending also remained at relatively low levels. Although decreasing interest rates have provided some relief to households, the negative endowment

A FirstRand release around their refinancing of their empowerment deal was worth a read yesterday. From the release "In 2005 FirstRand facilitated the acquisition of 6.5% of its issued share capital (363.8 million FirstRand ordinary shares) by FRET as part of its BEE Transaction. Pursuant to the unbundling of Discovery Holdings Limited ("Discovery") by FirstRand in 2007, FRET became the holder of 20.4 million Discovery ordinary shares, in addition to the 363.8 million FirstRand ordinary shares it already held." OK, so we have some of the background, this is how the Refi is actually going to work. I know, an American term, I could not help myself:

FirstRand unbundling insurance interests and streamlining. Parties involved in the action yesterday were Momentum, Metropolitan, FirstRand and RMB Holdings and all of their respective shareholders, lots of cross holdings. The whole bancassurance model finally being dealt with here, one of the unlocks that shareholders had been talking about for a long time.

FirstRand released their interim results to December 2009 yesterday. Phew, all the banking stocks have rallied hard, all trading on multiples that suggest that earnings are going to pick up fairly aggressively from here. The factsheet that I look at suggests that the six banks covered by the analyst community should grow earnings around 18 to 25 percent this year and then 20 to 30 percent next year. So, two years out that puts all the banks at current levels at comfortably below 10 times earnings. ABSA and Nedbank look particularly cheap.