Standard Bank share price consolidates after trading update

Key Takeaways:

1. Standard Bank Group's headline earnings for the five months ending May 2024 (5M24) grew by low-to-mid single digits year-on-year
2. Banking activities reported mid-single digit growth in headline earnings year-on-year.
3. The group experienced income growth supported by higher average interest rates and increased client transactional volumes.
4. The Insurance & Asset Management (IAM) business posted year-on-year earnings growth driven by stronger performance in shareholder assets and exposures
5. ICBC Standard Bank Plc (ICBCS) remained profitable during 5M24, but group attributable earnings were lower compared to the high base in 5M23.

Standard Bank's Earnings Growth: Impact of Currency Fluctuations

For the five months ending May 2024, Standard Bank Group Limited experienced low-to-mid single-digit growth in headline earnings compared to the same period in the previous year. Currency fluctuations in countries such as Angola, Malawi, Nigeria, and Zambia negatively impacted this ZAR growth. However, when accounting for these currency movements, the group's headline earnings saw a mid-teens year-on-year growth. This demonstrates the challenges and opportunities that come with operating in multiple currency environments and how such fluctuations can affect overall financial performance.

Banking Activities: Income Growth and Credit Impairment Trends

Standard Bank's banking activities showed mid-single-digit growth in headline earnings year-on-year. Following an update in February 2024, the methodology for recognizing interest on Stage 3 loans was revised, resulting in an increase in net interest income balanced by a corresponding rise in credit impairment charges. This move enhanced the net interest margin and credit loss ratio, though without impacting HEPS or EPS. Income growth was supported by higher average interest rates and increased client transactional volumes, even as trading revenues reduced. The slowdown in balance sheet growth did not deter the positive trajectory, thanks to effective cost containment strategies and lower performance-linked incentives.

Credit impairment charges grew marginally year-on-year, primarily due to higher charges in Business & Commercial Banking and Personal & Private Banking (PPB). Interestingly, the growth in early arrears and non-performing loans (NPLs) in PPB has decelerated, which is a positive sign. In contrast, higher sovereign debt provisions in regions like Ghana and Malawi had a noticeable impact in the prior period. Consequently, the credit loss ratio for banking activities in 5M24 exceeded the group's through-the-cycle target range of 100 basis points.

Insurance & Asset Management: Year-on-Year Earnings Growth

The Insurance & Asset Management (IAM) sector marked a significant year-on-year earnings growth. This was driven by improved performance in shareholder assets and exposures. Enhanced risk claims experience in South African corporate and short-term businesses supported IAM operating earnings. However, a decrease in the earnings of the Africa Regions’ Asset Management due to the Nigerian Naira devaluation slightly offset these gains. This mixed performance underscores the complexities of asset management in volatile currency environments.

In other activities, ICBC Standard Bank Plc remained profitable, although the group's attributable earnings decreased year-on-year, coming off a high base in 5M23. Despite the dip in ROE for 5M24 compared to 5M23, it still fell within the comfortable range of 17% to 20%.

Looking ahead, Standard Bank Group aims to maintain positive jaws and a return on equity within the target range, setting a strong benchmark for the rest of 2024.

Standard Bank – Technical view

The share price of Standard Bank has seen an aggressive move higher post elections, as investor sentiment has improved most notably around SA Inc companies.

The long term uptrend has now been reestablished and traders respecting this trend might look to buy into pullbacks from overbought territory. Support levels where new long positions might be considered are at the 21060, 19650 and 19140 levels respectively.