ABIL results

>This morning African Bank released full year results ending September 2011. Remember that they released a trading update at the beginning of this month telling us that earnings would increase by between 23% and 25%. Well they came in with an increase of 24% which equated to R2.34bn or 291c per share. A dividend of 185c will be paid for the year yielding a very handsome 5.5% at current levels. The share trades at 3416c giving us a historic PE of 11.7, more on this later. The banking business grew 24% and was responsible for the majority of the earnings, R2.3bn. The retail business grew nicely, 46% in fact but is still only responsible for R190 million worth of earnings.

So why have earnings grown so nicely? African Bank have been implementing a huge drive in increasing access points to their credit. Much of this has been done through their Ellerines stores, new attractive products and larger loans to good clients. In the current year R1.7 billion in loan sales were raised through distributions that did not exist for the bank 12 months ago.

When a drive like this is implemented for a micro lender one has to pay attention to bad and doubtful advances. There is no point increasing your loans if they are not going to be returned. This number inevitably increased substantially by 34% to R3.6bn. Not to worry too much though, overall net advances increased 38% to R35bn so the overall ratio actually decreased from 10.6% to 10.25% bad debt to net advances.

So what does a valuation of 11.7 tell us? Most of the banks are trading on similar to lower valuations. But African bank has the retail element which as we know, industry peers are trading at higher valuations than the banks. And when I mention retail I don't just mean Ellerines, I am referring to loans made in order to buy that material for a house renovation or paying for those school fees. We know that the consumer is spending.

As you know we like the bank as an investment theme. It is also a case of if you cannot beat them, join them. I am referring to the labour unions here. As wages increase unnaturally through the process of joint negotiations African Bank clients are going to have more disposable income. Management also seem pretty positive about the future even though times are still quite tough. "While it is expected that the subdued economic environment will continue in 2012, the group is confident of its prospects for the next financial year.

The Bank should continue to benefit from the substantially greater distribution base that was achieved this year and the number of new products and initiatives in development. The EHL group similarly, has a number of innovations and product enhancements that are expected to impact positively on growth. Above all, we believe that our continued focus on the development of our people will accelerate the energy and the momentum that manifested this year." We continue to add at current levels.