Should you invest in Absa if Barclays exits?

Following the rumours that Barclays PLC would be would be selling its stake in Barclays Africa (known as Absa in South Africa), the stocks fell on the Johannesburg Stock Exchange (JSE). Barclays PLC has since confirmed that it will be selling its holdings in Barclays Africa over the next two to three years.

But with the share price plunging, is now a good time to buy Barclays Africa shares or sell them?

Paul Chakaduka, senior trader at GT Private Broking thinks that investors shouldn’t run for the hills when it comes to Absa: “BGA remains a strong business as reflected in the numbers released this week. The Barclays brand has been very strong across Africa especially in Anglophone Africa. Standard Chartered and BGA remain some of the strongest brands within these markets and have significant market share and do not look like they are going to give any ground away. The “lucky buyer” of BGA will inherit a well-oiled banking machine which has a strong banking network and a solid customer base. Sub-Sahara Africa continues to grow and BGA has significant presence in key markets.”

Prior to Barclays PLC buying into Barclays Africa (previously Absa), the bank was well established. Experts say that despite Barclays PLC ending the partnership, the Barclays Africa brand will remain strong.

How do Barclays Africa shares compare?

While BGA would be an asset in a portfolio, it’s by no means the best. “It’s always important to compare apples with apples, BGA is not a South African bank, we see it as an established Pan-African bank. If we were to compare BGA to Standard Bank (SBK) another Pan-African bank listed on the Johannesburg Stock exchange, our pick would be SBK. It does slightly better than BGA on a number of metrics such as return on equity and Tier 1 capital ratio. BGA is definitely not the top pick from the SA banking shares, First Rand (FSR) still continues to command the top spot, whilst Nedbank (NED) and Standard Bank (SBK) come in second and third respectively. BGA comes in a disappointing fourth if we look at all key metrics,” reveals Chakaduka.

Barclays Africa reassures its customers

On Wednesday 2 March, Barclays Africa sent a message to its clients to assure them that Barclays PLC selling its shares in the bank will not impact customers. “Barclays PLC announced their intention to sell down their 62.3% stake in Barclays Africa (Absa in SA) over 2-3 years. You will not be impacted in any way. Absa is here to stay. Our financial results show solid growth. We will continue serving you as always.”

About Barclays Africa

“The Group was formed through combining Absa Group Limited and Barclays’ African operations on 31 July 2013. Reflecting the enlarged group’s pan-African focus, our name changed from Absa Group Limited to Barclays Africa Group Limited on 2 August 2013,” explains Barclays Africa.

Barclays Africa is currently 62.3% owned by Barclays Bank PLC. However, Barclays PLC recently announced its decision to sell its stake in Barclays Africa.

Chakaduka denies that Rand’s slump is the main reason for its exit. “There is a misconception that BARC (Barclays PLC) is leaving because of the recent devaluation in the Rand, the Rand has devaluated from R6 to the USD$ in 2005 to 14.85 in 2015. The currency over the last 10 years has been depreciating at approximately 8.9% per annum, the share price has moved from R50 to R144.

“BGA (Barclays Africa) has been a worthwhile investment as the “BARC Eagle” has managed to cream the South African seas in the last 10 years with chunky dividends being paid off to London. The existing situation that BARC finds itself in Europe and America has precipitated its flight from Africa and other so called non-core markets. BARC is going into defensive mode to protect the heart of its franchise so as to be able to attack in years to come,” he says.

Following the announcement by Barclays PLC, Barclays Africa released a statement explaining that the decision was based solely on the regulatory pressures.

“It is not a reflection on our business, our strategic direction or the performance of the economy in South Africa,” highlighted Barclays Africa Group chief executive Maria Ramos.

She added: “Our future as Barclays Africa is very bright and our ambition to be Africa’s leading bank remains unchanged.  We are a strong, well-capitalised and independently funded business. With our destiny firmly in our own hands, the way is now clear for us to shape an exciting future, using our strong balance sheet to invest for growth.”

What does Barclays PLC leaving Africa mean?

Chakaduka points out: “BARC has indicated that its sell down to a non-controlling stake will be done over a two to three year period. The implications cannot be easily determined as BGA remains a strong “independent” financial institution with a strong balance sheet. The crux of question is, who will take over the BARC’s stake in BGA and what shareholder role will they play in the future BGA and will BARC be able to find a suitable buyer. If BGA is to remain an apex predator in the “banking skies” it needs to find a buyer with a good name, a strong balance sheet and that is able to withstand the turbulent emerging market space.”

The bank has come out emphasising its commitment to its African market. “Barclays Africa Group Limited (BAGL) wishes to reiterate that we remain committed to Africa, where we continue to be optimistic about our growth prospects, and to operate in the normal course of business,” the company revealed in a statement.

Ramos adds: "We continue to offer a full and integrated range of products and services to more than 12 million customers in 12 countries across Africa and our customers can be just as confident doing business with us today as they have always been. With an independent board and a separate listing on the Johannesburg Stock Exchange we are deeply rooted in Africa and remain firmly in control of our future."

Who could buy Absa?

“It is difficult to ascertain who could buy into BGA, one would look at a bank seeking African exposure. There has always been interest from Asian banks looking for exposure in Africa and we feel these could be the most likely candidates. On the African continent a couple of names spring up such as Atlas Mara and Eco Bank that could look to snap up some of the BGA assets. The PIC has indicated that it could increase its position, and I think we could see them buying a bigger stake in BGA but not big enough to take up the full BARC position,” adds Chakaduka.