Nedbank Heads for Eight-Month High on Surprise Profit Increase

Johannesburg, Capital Markets in Africa: Nedbank Group Ltd., the South African lender controlled by Old Mutual Plc, reached the highest level in eight months after first-half profit rose, beating analyst estimates that had predicted a decline.

The shares jumped as much as 8.3 percent on Monday before paring gains, leading returns on the seven-member FTSE/JSE Africa Banks Index. First-half earnings per share excluding one-time items climbed to 11.19 rand from 11.01 rand a year earlier as bad-loan impairments improved. That compared with the 10.67 rand median of three analysts surveyed by Bloomberg.

“Nedbank produced a surprisingly strong set of results, with a solid set of numbers from South Africa,” said Neelash Hansjee, a banks analyst at Old Mutual’s investment-management unit. “The credit quality improved in a tough environment, while revenue performance was very reasonable. Expectations were low heading into this result.”

The lender and its peers are struggling against a South African economy heading toward a recession and a potential credit-rating downgrade of the country’s debt to junk by the end of the year. While Barclays Africa Group Limited last week reported a 46 percent surge in impairments in the first six months of this year, Nedbank’s bad-debt charges decreased by 4.2 percent.

Nedbank advanced 6.9 percent to 212.77 rand as of 12:49 p.m. in Johannesburg, the highest on a closing basis since Nov. 27. More than 2.2 million shares changed hands, two times the three-month daily average.

Although better than expected, Nedbank’s earnings growth slowed to 2.1 percent, from 16 percent in the first six months of 2015, after it accounted for losses associated with its stake in Ecobank Transnational Inc., Nigeria’s third-biggest bank by market value. Excluding its 20 percent stake in Ecobank, first-half earnings per share before one-time items rose more than 19 percent.

The continent’s largest economy has been battered by lower oil prices and an acceleration in inflation after the cost of gasoline and food surged due to higher import prices caused by dollar shortages blamed on a 15-monthcurrency peg. The naira has weakened 37 percent against the dollar since the central bank on June 15 allowed the currency to float freely.

“We’re working well with the Ecobank board on enabling them to have a more focused strategy,” Nedbank Chief Executive Officer Mike Brown said by phone from Johannesburg. “It’s a long-term investment and we fully expected to have some bumps along the road.”

‘Much Better’

Ecobank released first-half results through June on Friday that showed the group, which has banking operations in more than 30 countries across Africa, made a profit of $152 million compared with $244 million a year earlier.

Nedbank’s second half “should be much better” with Ecobank’s losses out of the way, said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town. Nedbank’s figures also present “a view that the credit cycle is not as bad as everyone thought,” he said.

Nedbank predicts South African policy makers will increase interest rates, already at their highest level since 2010, by another 25 basis points in 2016. While it may boost the money banks make from interest charges, consumer bad debts may worsen during the course of next year, Brown said. 

To diversify and find growth elsewhere, the lender still believes in its African expansion strategy and expects to pay about 112 million rand ($8.1 million) to increase its stake in Mozambique’s Banco Unico in the second half, he said.

Source: Bloomberg Business News