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Standard Bank earnings review

Standard Bank Group Limited – Provisional results and dividend announcement for the year ended 31 December 2018

Key Insights

  • Stock down 2.3% on high volume
  • Stock price crossed below 50 day moving average at R187,36 on a high trading volume
  • Analyst consensus price target of R202,14 is 10% above current price

Earnings Highlights

  • Headline earnings up 6% to R27 865 million (2017: R26 270 million)
  • HEPS up 7% to 1 748 cents (2017: 1 640 cents)
  • Dividend per share up 7% to 970 cents (2017: 910 cents)
  • Return on equity up to 18% from 17.1% in 2017
  • Net Asset Value (NAV) per share up 6% to 10 380 cents
  • Cost-to-income ratio: 57% (2017: 55.5%)
  • Credit loss ratio: 56bps (2017: 87bps)
  • Common equity tier (CET) 1 ratio: 13.5% (2017: 13.5%)

Competitor Comparisons

Overview of Group Performance and Banking Activities

Standard Bank Group Limited (Standard Bank) this morning released their provisional results for the year ended 31 December 2018. The groups headline earnings increased 6% to R27.9 billion and ROE up 18% compared to 17.1% in the prior period. The groups capital position remained strong and constant with a common equity tier (CET) 1 ratio of 13.5%. The CET ratio measures the bank’s financial strength by comparing its core equity capital with its totals risk-weighted assets.

Profits from banking activities were up 7% to R25.8 billion and ROE increased to 18.8% compared to 18% in the prior period. The growth was improved from strong non-interest revenue performance, particularly from retail banking, as well as lower credit impairment charges. However, growth was dampened by a negative JAWS (Extent to which income growth rate exceeds its expenses growth rate) and lower net interest income growth. It is therefore apparent that costs grew faster than revenues over the period.

The groups African operations proved to be the stand out performer amongst the group, contributing 31% to the groups headline banking earnings. This contribution is up 28% from 2017. It is important to note that the groups African operations grew faster than the groups South African operations, coupled with an expected African GDP growth of 3.5% in 2019. This puts the group in a strong position to capitalize on future growth coming from expected economic growth through the African regions as it is already well positioned in the market.

In South Africa, economic growth is expected to remain subdued in the early parts of 2019, with accelerated growth coming in the second half of 2019 and into 2020. This may impact the consumers demand for credit as a result of lower business confidence, higher taxes and lower disposable income for the consumer.

The group is committed to its medium-term targets to maintain sustainable earnings growth and a return on equity in their 18% to 20% target range.

Business Units

Personal and Business Banking – Double digit earnings growth

Headline earnings grew 10% to R15.5 billion with ROE increasing to 21.9% from 20% in 2017. The factors contributing to the growth were higher transaction volumes, strong customer growth, lower credit impairment charges and balance sheet growth.

Corporate and Investment Banking- Marginal earnings contraction

Headline earnings decreased 2% to R11.2 billion with ROE declining to 19.3% compared to 22% in 2017. Revenue was strong throughout the African operations but was hampered down by lower trading and capital market related activity due to the tough market conditions locally. Increased competition in this space also contributed to lower growth.

Liberty (Life Insurance Subsidiary) - Outperformance

Headline earnings attributable to the group increased 11% to R1.6 billion. Liberty had strong operating performance with operating earnings up 42% compared to the prior year.

Other Banking Interests – Mixed Performance

Standard Banks ICBC (Industrial and Commercial Bank of China) partnership is a leading financial markets and commodities bank. It offers clients advanced knowledge and access to grow and develop their investments or businesses in both developed and emerging economies. ICBCS recorded a loss of $14.9 million for the year, with the groups 40% share equating to R74 million. However, headline earnings from the groups 20% share in ICBC Argentina increased 19% to R492 million for the period, showing promising signs of growth for the future.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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