Standard Bank, Africa’s largest lender by assets, has reported robust growth in its operations in the rest of the continent, while analysts are keeping a close eye on how the bank integrates its now fully owned insurance arm, Liberty.
For the 12 months to end-December, Standard Bank’s headline earnings jumped 37% to R34.27bn, whereas its banking activities reported a 22% gain to R30.54bn. This indicates Liberty’s return to profitability — it clocked up headline profits of R2bn compared with a loss of R64m a year earlier.
The bank’s Africa regions unit, which operates in 19 countries, showed a 36% rise in headline earnings to R12.2bn.
This helped the lender declare a chunky — and record — dividend of 691c a share, taking the total 2022 payout to R12.06 a share.
“Standard Bank’s success thus far across its rest of Africa markets … is an important consideration in our investment thesis, relative to the South African financial services peer group,” Tasneem Samodien, research analyst at Old Mutual Wealth Private Client Securities, tells the FM.
“We expect the growth in these emerging economies to outstrip that of South Africa, and with Standard Bank playing a pivotal role in their economic development, this adds resilience to Standard Bank’s earnings relative to its South African peers,” she says.
The bank’s CEO, Sim Tshabalala, says most of its clients in the Africa regions segment are at the top end of the income curve. “They are wealthier customers we have relationships with from the corporate banking side.”
Over the past decade, the bank has managed to grow the Africa regions’ headline earnings by a compound average growth rate of 26%, according to Samodien. In future, Tshabalala expects GDP growth in Sub-Saharan Africa of 3.8% this year (compared with 1.2% in South Africa) and for it to “accelerate to 4% over the medium term”.
However, it’s not all been plain sailing. As with other South African lenders, Standard Bank has taken a bullet from the Ghanaian government’s debt restructure. Standard Bank set aside R1.47bn for the fallout in its latest results, at a coverage ratio of 56%. FirstRand impaired R496m, Absa raised R2.7bn and the effect on Nedbank, through its West African associate Ecobank, is R175m, all for the period through to December 31.
Pierre-Jean Prinsloo, analyst at Centaur Asset Management, is more cautious about the outlook for the bank’s African regions: “The bank’s diversification over 19 African countries [outside] South Africa assisted with mitigating the impact of the Ghanaian sovereign debt default. [Over the] longer term, we are more cautious, as political, sovereign and cost pressures will make 2022’s growth difficult to beat, while the benefit from stronger African currencies will most likely not continue in coming years.”
Still, Standard Bank shares seem cheap: they trade on a p:e of 8.2 and a dividend yield of 7.1%, in line with that of Nedbank (7.5%) and Absa (7.3%). The share price has gained 9.1% over the past year, compared with the FTSE/JSE banks index’s 2.8% decline over the same period.
Now, after the return of life claims to normal levels following the pandemic, the bank needs to focus on integrating Liberty into its operations.
Samodien says: “The integration of Liberty into the Standard Bank group is just starting. The current focus is on improving the insurer’s distribution capability and customer experience, predominantly through investment in technology platforms, as well as refining the distribution strategy to make sales teams more effective.
“These are not issues that can be remedied in one reporting period.”