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FY16 results showed revenue to have increased by 8% and headline earnings by a marginal 5% against the prior year’s comparative. Headline earnings growth in the Rest of Africa was good increasing by 17% (now accounting for nearly 20% of group earnings), although in South Africa earnings growth was relatively flat having added only 2% over the year. Net interest income and non-interest income added 9% and 6% respectively over the period, however credit impairments increased sharply (+26%), to negatively impact the Groups Return on Equity which has now fallen to 16.6% from 17%.
Barclays Africa has also provided an update regarding Barclays Plc’s plans to sell-down and separate itself from the African operations. Barclays Plc has now submitted its application thereof to the South African reserve Bank, seeking further approval from the minister of Finance.
The agreed terms of the divestment see contributions totalling GBP765m from Barclays Plc to Barclays Africa, to recognise investment spend in technology and rebranding, cover separation related costs and terminate service level agreements between the companies.
Further in the terms agreed, Barclays Africa will be allowed to continue using the Barclays brand in the rest of Africa for three years and will receive certain services from Barclays on an arms’ length basis for a transitional period up to three years.
Barclays Africa Group results fell short of consensus estimates, although not materially so. Muted growth is likely to continue into FY17 following slow economic growth in South Africa, where the bulk of group earnings remains domiciled. Earnings in the Rest of Africa is encouraging and becoming a more material contribution to the group total, although should rand strength continue it may dampen the rate of growth outside of SA’s borders when repatriated. The impact of the Barclays separation could provide a further negative headwind for the group in the short to medium term. However, trading on a price to earnings (P/E) multiple of less than nine times, whilst offering a dividend yield in excess of 6% suggest that the current pricing of Barclays Africa might still be a marginal discount to fair value.