FirstRand results, nice special dividend

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.

Earnings were increased by 22% to R10.1bn which equated to 179.4c per share.
The share trades at 2087c so a historic valuation of 11.6 which is pretty much in line with the rest of the banks. What shareholders will be pleased to see was the announcement of a special dividend. 70c per share is what is being distributed because of the disposal of non-core assets. This, on top of the 81c already being paid. We were definitely pleased with the unbundling of the insurance businesses. It has always created a cloud of uncertainty which came with the insurance businesses volatility. Stick to what you know and focus all your energy and attention on that.

Let's look at these earnings per division. The FNB bank brought in R5.5bn in earnings. 500 million of that from the African division. The bank equated to over 50% of overall earnings. FNB South Africa grew pre-tax profits by 20%.
This was due to a combination of a 29% decline in bad debts, a 3% growth in clients and a 14% increase in transactions. The decline in debts is very commendable but it is also a trend we have seen from most of the banks. I think it is a function of lower interest rates, better efficiency from the banks and the wakeup call that the financial crisis has brought to almost everyone. FNB have also been at the forefront of innovation and this is what is responsible for their increase in clients and transactions. Better services means more clients but it also means more transactions as they get easier and easier to process. I have already used the FNB app on my phone to make transactions and it is a real treat.

RMB which is their investment banking division brought in R3.6bn, a third of overall earnings. This showed a growth of 9% which is impressive off a fairly high base. In comparison ABSA capital earnings were flat for the year while Investec's operational earnings were down 6% in their last report. Well done to the folks at RMB.
Wesbank which is mostly vehicle finance brought in R1.8bn of earnings. This is a growth of 95% from last year. I remember analysing the Imperial numbers and they stated that vehicle sales in SA grew by 21% so that explains the growth. But on top of that, good cost management and better interest margins due to low rates were also an influential factor.

In the end, a good set of results from a company that is making headway in all its divisions. I like the management and I like the innovation shown by the banking division. Unfortunately I just don't like big banks who I believe are going to be regulated to an extent where earnings will always be limited. There was nothing new in the prospects, troubles in Europe but good growth in Africa where they are expanding more and more.