Top 4 banks earnings: ABSA, FSR, NED and SBK IG shares amid Covid-19

The following looks at recent earnings outcomes from South Africa’s top four commercial banks as well as their current institutional broker ratings and short term retail sentiment.

The four banks on the JSE:

1. ABSA (ABSP)
2. Firstrand (FSR)
3. Nedbank (NED)
4. Standard Bank (SBK)

ABSA, FSR, NBKP, and SBK shares – Broker ratings and client views

The below table highlights how major South African Banks (ABSA, Firstrand, Nedbank and Standard Bank) are currently viewed on both an institutional (analyst) and retail (trader) level.

The table highlights current analyst ratings (as polled by Thomson Reuters), as well as how IG clients who are trading these counters are placed at the time of writing.

The Thomson Reuters analyst ratings and IG Client sentiment are features available on IG’s trading platform. The ratings and sentiment indicators are snapshots of these views on the respective shares as of the 26th of August 2020.

ABSA, FSR, NED, and SBK remain resilient, share price outlook positive

The banking sector carries an average long-term analyst rating of ‘Buy’ amongst institutional analysts. This is perhaps a suggestion that although domestic economic conditions are frail at best, the longer term outlook may be better than the current market pricing / correction has accounted for.

In terms of IG client sentiment data, Nedbank, followed by Firstrand have the most ‘long’ open interest and the least short open interest (as of the 26th of August 2020).

“Long” means that traders with open positions on the company expect the price to rise in the near term, while ‘short’ means that traders with open positions on the company expect the price to fall in the near term.

ABSA, FSR, NED, and SBK recent earnings updates

Locally listed banking counters ABSA, FIrstrand, Nedbank and Standard Banks have seen their respective share prices correcting significantly in 2020, as markets try to asses how severe the impact of Covid-19 will be on the local economy. Banks whose fortunes are directly linked to that of the domestic economy have now provided some insight into the damage done over the lockdown and pandemic period.

ABSA (ABSP)

Absa Bank Limited interim results have shown the preceding lockdown industry trend of rising impairments aggessively accelerated in the first six months of its current financial year. Credit impairments for the group have risen by a massive 297% as the covid-19 pandemic has taken its toll across all the the group’s business divisions both domestically and into the rest of Africa.

The net result has been a 93% slump in profit for the period when compared to the prior year’s interim period as well as an unlikely dividend payout this year.

Firstrand (FSR)

FirstRand Ltd is set to release full year results on the 10th of September 2020. The group has however already guided that it expects full year profit to have declined by up to 45% from the previous financial year.

The drop in profit while not as severe as that of ABSA does however account for 12 months rather than 6 months data and in turn a smaller proportion of the covid 19 impact on earnings.

The group is expected to have seen the onset of the pandemic and subsequent lockdown equate to a sharp increase in credit losses and impairment charges across it’s retail, commercial and corporate segments.

Nedbank (NED)

Nedbank Group Ltd interim results showed a drop of 69% in headline earnings when compared to the prior year’s six month period. The group has had to provide payment relief for roughly 15% of its client loans and advances across its different business units, while impairment charges increased by a staggering 202%.

While Nedbank does expect and has already started to see a gradual improvement in client activity, full year guidance see’s the group forecasting lower impairment provisions but still a contraction in headline earnings of more than 20% in the current financial year.

Standard Bank (SBK)

Unlike ABSA, Standard Bank Group Ltd headline earnings in the group’s Africa Regions business proved relatively resilient, producing headline earnings growth of 11%. The top six contributors to Africa Regions’ headline earnings remained Angola, Ghana, Kenya, Mozambique, Nigeria and Uganda.

However, headline earnings from its South African operations fell by 72% as the pandemic and resultant hard lockdown furthered the impact of an already difficult economic climate.

Total group headline earnings fell by 44%, and a Return on Equity was realised at 8.5%. The group increased provisions held against loans and advances by 26% compared to the same period in the previous year.

How to trade top 4 bank stocks in South Africa

If you want to trade any of the top 4 bank stocks we have discussed today, you can utilise IG’s CFD trading platform to speculate on the share price movements of the underlying asset – to buy (long) or sell (short) following these simple steps:

1. Create an IG Trading Account or log in to your existing account
2. Enter the company name or ticker in the search bar and select it
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade

In summary

• Recently released results from these counters show a weak domestic economy with a sharp rise in credit losses and provisions exacerbated by the pandemic and hard lockdown
• Earnings for ABSA and Nedbank have been hardest hit over the last reporting period
• Firstrand and Standard Bank earnings, while posting a substantial decline appear to have shown a relative resilience when compared to ABSA and Nedbank
• The banking sector currently carries a long term average rating of ‘Buy’ according to a poll conducted by Thomson Reuters