JSE Top 40 bank stocks compared

The following article compares JSE listed banking stocks: the Absa Group, Capitec Bank, FirstRand Ltd, Nedbank and Standard Bank in terms of total returns, broker ratings and peer valuations, as of the 24^th of May 2023.

Total returns

The following table highlights total returns for locally listed banking counters over a one month, three month and year to date look back period. Total returns reflect capital gains and dividends paid over the respective periods.

After a relative outperformance in 2022, banking shares have had a mixed fate in 2023 thus far.

Standard Bank is the outperformer year to date supported by strong gains in the last month.

FirstRand Ltd and Nedbank have also produced positive total returns for the year to date, although have seen some of the short-term gains stifled over the last month.

The Capitec Bank share price has managed to rebound over the last month, although has still produced a negative total return for the year to date.

The Absa Group has lagged its peers and is the worst performing banking counter so far in 2023.

Banking shares price targets and broker ratings

The below table shows locally listed banking counters, highlighting long term price targets and broker ratings as of the 24^th of May 2023, sourced from Refinitiv Workspace.

ABSA, FirstRand, Nedbank, and Standard Bank all carry consensus buy ratings at present, while Capitec continues to see a consensus hold rating.

While Nedbank currently trades at the steepest discount to a median of broker / analyst price targets, all the banks covered trade at discounts to these longer-term fair value assumptions.

Peer valuation

The ABSA Group has the ‘cheapest’ historical and forward-looking price to earnings (P/E) multiples, while having the highest historical dividend yield (D/Y).

Capitec on the other hand trades at the most ‘expensive’ historical and forward-looking P/E valuations, whilst having the lowest historical D/Y.

ABSA Group vs FirstRand Ltd (pair consideration)

The pair considers a Long ABSA position against a Short FirstRand position. The net result of these combined trades looks for a 13% profit margin. A stop loss is considered of equal proportion to the expected gain.

A successful pair trade can be realized 1 of 3 ways:

1. The long position rises while the short position falls

2. The long position rises faster than the short position rises

3. The short position falls faster than the long position falls.

The blue line on the chart represents the ABSA / FirstRand ratio which recently traded more than 2 standard deviations below the mean (middle line). A successful trade would require the ratio (blue line) to return to the mean to meet the guided profit target.