Weekly Roundup 2022-09-16

Author: Danyaal Munshi

Weekly Roundup 2022-09-16

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 68 708 66 584 -9.68%
NASDAQ Composite 15 833 12 112 11 448 -27.69%
S&P 500 4 797 4 067 3 873 -19.25%
Prime Lending Rate 7.25% 9.00% 9.00% 24.14%
Lunar BCI WW Flexible Fund 165.68 146.87 146.28 -11.71%
USD/ZAR 15.96 17.33 17.62 10.40%
EUR/ZAR 17.95 17.41 17.65 -1.67%
Brent Crude 77.86 92.19 91.53 17.56%

Source: iress

Company and Market News

Last Thursday, FirstRand released their 2022 year-end results. The group CEO, Allan Pullinger, commented that earnings for the group have recovered and are above the 2019 peak levels. Return on equity (ROE) for the year was strong at 20.6% compared to the ROE of 18.4% from the previous year. Normalised headline earnings for FirstRand increased by 23% to R32.7 billion. The group also declared an annual dividends of 342 cents per a share, and a special dividend of 125 cents per a share. The total distribution to shareholders was R26.2 billion. Pullinger noted that the earnings growth for FirstRand is expected to revert back to the long term target of real GDP plus CPI plus (0% to 3%).

Comments from FirstRand indicate that the significant growth seen this year was as a result of new business origination picking up during the second half of the year. They were also able to significantly decrease their credit loss ratio (the amount they do not expect to recover from their core lending advances). Their credit loss ratio for 2022 year end was 0.56% compared to 1.10% from a year ago. The net interest income (NII) for the year increased by 6%. This was as a result of FirstRand taking a more conservative approach to who they lend to.

The poor current macro environment in South Africa poses a risk to FirstRand. The slow increase in the real GDP for the country will negatively impact the amount FirstRand will be able to earn over the long term. Another possible risk FirstRand faces is that they are currently being more conservative with the loans they are issuing. This could result in competitors increasing their market share if they are able to effectively manage their credit loss ratio.

Below is a table comparing certain metrics of FirstRand with other South African banks.

Company Return on Equity Credit Loss Ratio 12m Headline Earnings (ZAR’bn) PE at Friday 16 Sep 2022
FirstRand 20.60% 0.56% 32.7 10.87
Standard Bank 11.30% 0.82% 27.7 8.09
ABSA 14.22% 0.91% 20.9 7.31
Nedbank 11.58% 0.85% 13.1 7.98

Disclosure: FirstRand is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

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The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

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