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On your marks

30 May 2005 Angelo Coppola

The Absa numbers are good as headline earnings were up 23.3%; cost to income ratio of 56.8, while dividend per share were up 62.1%, with market capitalization at R52bn.

The market capitalization initially was R5bn, while in 1991 the Absa share price was R7.70, and if this is projected forward then the compounded return over the last 17 years on the share price is 22%, and this excludes dividends.

A significant reduction in bad debt (32.5%) was a major kicker to the groups’ results, says Jacques Schindenhutte, the person responsible for finance at Absa.

“Credit demand has been strong, and while the interest margin is under pressure, this is made up by the volumes,” says Absa chairman Danie Cronje.

“The main challenge going forward is the adherence to regulations and compliance locally and internationally, with the proposed transaction adding the complexity of the compliance.

Speaking about regulations and compliance, remember Unifer? Well, it seems that the group's provisioning for the losses incurred should cover their exposure, and the status quo remains. Schindenhutte reports that there is still in the region of R350m that needs to be collected.

They (the group) are not feeling anything positive in this area of the business. "We are not getting excitedhere yet," he says.

“There has been a massive increase in head office costs due to implementation of a SAP system,” says Schindenhutte, “with the negative effect on headline earnings contribution jumping from (3.7%) to (205%).”

Another challenge is the government call and continued pressure for the banking players to introduce a player into the lower end of the market.

It was also indicated that activity into Sub-Sahara will be build on the fact that the minority’s rights will be protected. According to Schindenhutte the Barclays deal brings with it access to Africa.

There will be a credit rating change when the deal goes through and there is talk that this may well be higher than the sovereign rating for the country, which is always good for a bank.

Steve Booysen, the CEO for Absa reported that the group now has 7m customers, of which 3.2m are black people, which are being serviced by an additional 45 branches and more than 500 new ATMs.

There was an overall good performance across all business units reports Booysen, with one in three houses financed by Absa in SA, while business internet banking has also shown substantial increases.

On the international level the return on investment in their international operations doesn’t warrant what has been invested, and some proactive steps

On the broking side, Absa Brokers increased their business, with one in 10 recurring life policies written by Absa Brokers.

Schindenhutte says that the earnings mix is skewed towards the consumer, with a drive to move towards the commercial side of the business.

“On the other hand the insurance company reported record results, while the life operation also grew, due mainly to the growth in the credit life business area.”

Quick Polls

QUESTION

The second draft amendments to Regulation 28 will allow retirement funds to allocate up to 45% of their assets to SA infrastructure, with a further 10% for rest of Africa; but the equity & offshore caps remain unchanged. What are your thoughts on the proposal?

ANSWER

Infrastructure? You mean cash returns with higher risk!?!
Infrastructure cap is way too high
Offshore limit still needs to be raised
Who cares… Reg 28 does not apply to discretionary savings
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