Africa’s biggest bank drops as profit misses estimate

Bloomberg

FirstRand Ltd., Africa’s biggest bank by market value, fell after full-year profit missed estimates as the company invested in an expansion on the continent and loan-impairment charges rose.
Earnings excluding one-time items rose to 22.4 billion rand ($1.6 billion) in the 12 months through June from 21.1 billion rand a year earlier, Johannesburg-based FirstRand said in a statement on Thursday. The average estimate of nine analysts for adjusted profit was 22.9 billion rand. FirstRand’s so-called normalized earnings, its main measure of profit, rose 7 percent to 22.9 billion rand.
Net income increased 4.2 percent, the slowest since 2009, as the company invested in building its asset-management and insurance businesses and expanding operations across 10 sub-Saharan African countries. In South Africa, where FirstRand also owns an investment bank, a retail lender and a vehicle-financing unit, the company is having to contend with an economy that is forecast to show little growth in 2016.
“To achieve the same level of growth in the year ahead is going to be very difficult,” Chief Executive Officer Johan Burger said by phone, referring to adjusted profit figures and a return an equity of 24 percent. “We’re committed to delivering growth in the next 12 months.”
The stock slid as much as 3.5 percent and was trading 2.3 percent lower at 46.02 rand as of 10:56 a.m. in Johannesburg. It was the biggest decliner in the six-member FTSE/JSE Africa Banks Index.
“South Africa’s economy remains fragile due to continuing low domestic growth, which is forecast to prevail over the next few years,” FirstRand said. “Low growth combined with weaker balance sheets of some state-owned enterprises has added fiscal risk, which is likely to result in a sovereign downgrade by the end of 2016.”
The country’s economy expanded an annualized 3.3 percent in the second quarter, after contracting 1.2 percent in the previous three months, as mining and factory output rebounded, the statistics office said Tuesday. Talks between business and the government aimed at finding ways of boosting growth are “ongoing” with some of initiatives gaining traction, Burger said.
“FirstRand produced a good, solid set of results considering the very weak economic backdrop in South Africa,” said Adrian Cloete, a banks analyst at PSG Wealth in Cape Town. “As expected the credit cycle has turned and this was seen in FirstRand’s impairment losses increasing by 24 percent. Pleasingly, the non-performing loans are well covered with the total overall coverage ratio at 77.9 percent.”