ABIL trading update

Yesterday we had a very positive trading update coming from our favourite bank, African Bank. The announcement stated that headline earnings per share will increase by between 23%-25% for the year ending 30 September 2011. Last year the company made 235,2c per share so for the full year 2011 we should expect around 292c a share. Nice.

Let's delve into these numbers more closely and see what was expected. For the first 6 months of the year they made 136,3c per share which was up 20% from the last comparable period. This means they'll be looking to make 156c for the latest 6 months which shows growth of 14% for the 6 months. That is fantastic in such tough conditions. The share trades at 3400c. On an earnings basis the stock trades on a valuation of 11.65. However the analyst community expects earnings for 2012 to come in at 341c which puts the stock on a forward PE of 10.

That's fair enough for a bank I guess. But for a bank that's niche sits with the growing masses in a country where people are desperate for credit in order to try and break out of the poverty cycle? Just to compare, Capitec who operate in a similar sphere trade on a multiple of 19. Yes they are expanding faster and more aggressively but they also do retail banking which African Bank do not. It's a matter of risk, African Bank are more conservative and have a simpler business model. We prefer to stick with these guys. Congrats to those who picked Capitec early but remember Blue Financial services and African Dawn also operated in that sphere when Capitec were small and they have struggled immensely. It's hit and miss with small businesses and unless you know the management team really well, rather stay away.

And let's not forget the fabulous dividend African Bank will pay. The analyst community expect 190c per share. That is a yield of 5.6%. Tell me that is not impressive. At current interest rates in developed countries this is a gold mine (or has the term changed to iron ore mine?). I saw a recent interview with Leon Kirkinis the CEO. In fact it was on Paul's show Mad Markets. And he couldn't exuberate more passion about the fact that he was providing an essential service to people who would not normally receive credit from other banks because of their situation. School fees, housing, business start ups. These are the kind of things that get funded. We will carry on adding at these levels.