African Bank trading update confirms everything is "OK"

African Bank have released a trading update this morning, and I am guessing that there will be a few relieved folks around. Consensus, at least the one that I can see, suggested that earnings were expected to show around 21 percent growth. ABIL advises "... that both headline earnings and earnings for the period are expected to increase by between 17% and 19% relative to the R2 339 million reported for the 2011 financial year. Similarly, headline earnings per share and earnings per share are expected to increase by between 17% and 19% relative to the 291,0 cents per share reported for the 2011 financial year." So, rough back of the matchbox calculations suggest that ABIL will make between 340 to 346 cents per share, let us call it 343 cents. That is almost an identical second half to the first half. I suspect that the full year dividend will be the same as last year, and the year before that, 185 cents.


Which means what? Which means at roughly 29 ZAR the stock trades on a historical multiple of less than 8.5 times, on a dividend yield of 6.4 percent at these current levels. Just yesterday Byron wrote about the company and the stock price, here is a refresher: African Bank update ahead of results. This part is quite important: "That puts the stock on forward multiples of 8 (2012), 6.7 (2013) and 5.5 (2014). Historically the company has a strong dividend policy which should see yields above 8% in years to come." The stock is off 28 percent and a bit since the beginning of April. Over five years the stock is down 19 percent. Now, since 2007 African Bank have paid 10.75 ZAR in dividends, that is one of the attractions of the stock, their very high yield relative to their peers.


But that means nothing, the current price is always a reflection of future earnings. The concerns lately and the reason for the share price falling is that there is a lot of chatter out there related to unsecured lending. The company says that they have a handle on this: "ABIL continues to be actively engaged in discussions with the various regulatory and industry bodies about a range of issues to strengthen the sustainability of the credit industry. We welcome this debate and wholeheartedly support initiatives that seek to protect the consumer while enabling responsible access to credit."


There is a conference call later this afternoon, at four thirty. Why this afternoon? Well, because they have lots of offshore investors, which might explain the aggressive selling. Full year numbers will come on the 19th of November, which is in three Mondays time. Until then, I think that this number will be favourably received. The stock has had a couple of good trading days, after having a really bad time for the last six months. We are recommending that you accumulate the stock here, it sure looks cheap.