Sasfin financial results a mixed basket

While on the whole Sasfin Holding Limits released positive results, there were areas that experienced decreases. Sasfin released its financial results for the year ended June 2016 earlier this week.

Factors affecting Sasfin’s performance

There were a number of factors that Sasfin revealed which affected the company’s performance. Among them were were that chronic unemployment, together with a high level of consumer indebtedness has been negatively affected by the weak global economy, as well as declining commodity prices, due to South Africa’s role as a significant commodity producer.

Furthermore, the country’s current political uncertainty continues to result in increased market volatility. However, it noted that the South African banking industry, “while taking strain from the weak economy, escalating regulation, technological disruption and cybercrime, remains resilient and well capitalised,” explained Sasfin.

Sasfin revealed that the weak credit environment, together with a sluggish economy, resulted in the Group’s credit loss ratio increasing to 180 basis points (bps) from 77bsp in 2015.

Roland Sassoon, Sasfin CEO, told Justmoney: “A credit loss ratio of 108 bps is not out of line with most banks in SA. The spike was partly caused by an increased Portfolio Impairment, based on our forward view of the economy, i.e. these are not losses incurred but, what we believe is a conservative view of losses that may arise due to the current poor state of the SA economy. It should also be noted that the previous year’s credit loss ratio was exceptionally low.”

Group costs increased by 19.8% to R828.316 million. According to Sasfin, this is due to the inclusion of the Fintech cost base, together with increased investment in risk, compliance and information technology.

Transactional Banking and Treasury achieved lower levels of profitability this year, Sasfin revealed. This was impacted by further investment in the newly-launched Transactional Bank offering. The banking unit is still in its formative phase and experienced lower than expected client acquisition.

Positive performance

However, despite some challenges, the Group achieved overall positive results for the past financial year. In a statement released by Sasin, it highlighted:

•          Business Banking produced good results, with profit for the year growing by 32.6% to R156.294 million, up from R117.857 million in 2015.
•          The Treasury Unit performed well, with a stable deposit base of R3.207 billion underpinned by a competitive service and product offering, Sasfin revealed.
•          The Capital Division’s profitability increased by 60.3% to R20.344 million, a large improvement from the R12.691 million in 2016.
•          Sasfin’s Wealth Division saw profitability increase by 18.6% to R76.406 million, up from 2015’s R64.425 million.
•          Commercial Solutions experienced a marginal profit increase from 2015. This was due to the improved performance in Sasfin Forex, however, the positive results were negatively impacted by the Freight and Incentives units due to the economic downturn and tough trading conditions. Profitability increased to R24.865 million compared to the R23.106 million achieved in 2015.

Looking ahead, Sassoon noted: “Our main objectives this year are to continue to increase critical mass across the board, whilst maintaining our credit standards, and to improve efficiencies, thereby improving our Cost to Revenue ratio.”

Reactions to Sasfin’s results

Chantal Marx, securities analyst at First National Bank (FNB), noted: “This was a very strong result as evidenced by the very positive market response following the release. Both headline earnings and the dividend per share were up almost 30% with the return on equity also showing a sharp improvement (+2.33%) to 17.54%.

“While group costs increased by 19.8% (mostly due to the Fintech inclusion), the cost-to-income ratio reduced because income growth outstripped cost growth.

“The prospect statement held an upbeat tone – which is always a good sign.”

However, there were some concerns. Marx revealed: “While gross loans and advances expanded strongly, non-performing loans more than doubled and the credit loss ratio deteriorated to 1.08% from 0.77%. Management ascribed this to the weak credit environment and a sluggish economy. This is something investors will be keeping a close eye on.

“Transactional banking is still in its formative phase and has unfortunately failed to meet management’s expectations from a client acquisition perspective.”

Looking at its value, Marx stated: “Sasfin is currently trading on a historic Price Earning (PE) of 10 times and a forward dividend yield of 3.4% which does not appear particularly demanding given its expected growth trajectory. The expectation is for normalised growth to continue in the high teens, low twenties over the next few years but a BEE transaction (expected over the next twelve months) could disrupt this in the near term. The rating is probably already discounting some sort of dilutive deal which could be why it seems to offer more value than the peer group on a relative basis.”

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