Barclays Africa Group results

Barclays Africa Group results fell short of consensus estimates.

Results Summary

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%.

Separation update

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.

Comments

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.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa 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. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.