Financial Mail and Business Day

Covid haunts FirstRand results

Africa’s biggest banking group by market value delivered a 54% jump in normalised earnings, but is still not yet at its pre-pandemic earnings levels

Garth Theunissen Investments Writer theuisseng@businesslive.co.za

FirstRand has delivered what appears to be an impressive set of annual results, but on closer inspection they also reveal that one of SA’s most valuable blue-chip financial services groups is struggling to shake off the damage wrought by Covid-19.

FirstRand delivered an impressive set of annual results, though closer inspection also revealed that one of SA’s most valuable blue-chip financial services groups is still struggling to shake off the damage wrought by Covid-19.

The group, whose underlying assets include FNB, Rand Merchant Bank and WesBank, delivered a 54% jump in normalised earnings, a metric that removes the effect of one-off items or seasonality, and came in at R26.55bn for the year ended June.

However, that was largely due to much of the previous financial year falling into the most stringent period of SA’s first lockdown that started in March 2020. Total provisions for stage one, two and three nonperforming loans increased 3% from the previous year to R50.62bn, which FirstRand said reflected its “prudent” impairment coverage.

“The level of improvement in the group’s performance demonstrates the quality of FirstRand’s portfolio of businesses and their ability to capitalise on the economic rebound that is taking place,” said Alan Pullinger, CEO of FirstRand, which is Africa’s biggest banking group by market value.

BASE EFFECT

“Although much of this growth can be ascribed to the prior year’s base effect, due to increased impairments raised for the impact of the Covid-19 pandemic, the group’s current year pre-provision operating profit, which excludes impairments, increased 5%, a pleasing outcome given the tough operating environment.”

The impact of that so-called base effect, which occurs when a financial data point recovers strongly from a previous period of underperformance, is perhaps best illustrated by comparing FirstRand’s current fiscal year results with its pre-pandemic performance. That analysis shows normalised earnings are still down 4.8% from the R27.89bn reported in the 2019 fiscal year.

Nevertheless, that is perfectly understandable given that SA’s economy shrank 6.4% and shed more than 1-million jobs in 2020 as Covid-19 and related lockdowns forced businesses to shutter operations for months. Given the dreadful economic backdrop that arose, FirstRand’s performance is still admirable.

“The resilience of customers given the economic fallout from Covid-19 proved to be better than expected and benefited from the temporary relief granted by banks, lower interest rates and the economic tailwind of commodity prices,” said Renier de Bruyn, senior investment analyst at Sanlam Private Wealth.

“However, credit impairment cost remained above preCovid-19 levels and the provision on the balance sheet for future credit losses remains high as uncertainty over the sustainability of the economic recovery and the threat of further Covid-19 waves remain.”

FNB was the star performer in the group’s 2021 fiscal year, with its R16.28bn in normalised earnings up 33% from R12.23bn the previous year, and even beating its performance in 2019. It also accounted for 61% of the FirstRand group’s normalised earnings for the fiscal year.

RMB, the corporate and investment banking unit that now includes long term investment manager Ashburton’s results, delivered a 25% rise in normalised earnings to R7.07bn.

WesBank’s performance was impressive with a 47% rise in normalised earnings to R1.23bn despite a challenging new car sales environment.

The performance of

FirstRand’s UK operations, which include Aldermore Bank and vehicle financier MotoNovo, saw normalised earnings rise to R2.74bn.

The shares closed 2.9% lower at R59.82, leaving it with a 17.2% increase in 2021 so far.

FirstRand’s board of directors declared a final dividend of 153c a share, taking its total gross cash dividend for the year to 263c per ordinary share.

The shares closed 2.9% lower at R59.82, leaving it with a 17.2% increase in 2021 so far.

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2021-09-17T07:00:00.0000000Z

2021-09-17T07:00:00.0000000Z

https://tisobg.pressreader.com/article/281556588958389

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