Tip of the week:
“Excellent platform to drive growth in earnings,” says Imara SP Reid
The recession was unkind to financial services firms. Results were rent asunder by the combined impact of slowing economic activity, massive impairments as customers were unable to meet loan obligations, and the value shredding impact of investors dumping shares by the bucket load. Shareholders in Sasfin Holdings Limited (JSE: SFN) had to watch their shares plummet from R58/share in late 2008 to just R21/share at the market bottom in March 2009. Sasfin recovered strongly until October 2009; but the company has lagged its financial sector peers ever since!
Analysts at stock broking firm Imara SP Reid believe Sasfin is well-positioned for a strong recovery over the next six months. “The increase in business activity in this sector of the economy and a decrease in impairments should help to increase earnings from the current levels,” they write. They believe the group will leverage its capital position to deliver earnings and dividend growth in the second half of FY2010. At 31 December 2009 the group achieved a statutory risk-weighted capital adequacy of 35% (versus 31% in 2008). Sasfin Bank Limited achieved 31% on the same measure, more than three times the prescribed minimum 9.75%!
Sasfin is billed as the “bank by entrepreneurs, for entrepreneurs” and operates a number of independent divisions. The group’s business banking division assists entrepreneurs with all aspects of new venture financing, including working capital and cash flow management. This division also offers rental finance (for office automation, capital equipment and software) and business finance (debtor, trade and plant & machinery finance). Other divisions include the Capital Division (private equity and corporate finance), Wealth Management, Treasury and Logistics & Risk Management.
The company achieved total income of R310.312m in the interim period to 30 December 2009, with R47.530m profit attributable to ordinary shareholders. The bulk of group operating profit accrued to the Business Banking (R17.370m), Capital (R15.596m) and Treasury (R15.125m) divisions. Wealth management earned R7.895m, with Logistics & Risk Management chipping in with another R2.813m.
Management is confident the group will deliver on its promise. They observe: “Sasfin is poised for future growth with its strong capital position, improved liquidity levels and investment in talent and systems.” At a price-to-earnings multiple of 7.94 times and a 5% dividend yield Sasfin offers better value than the ‘big four’ banks. You can buy the counter at around R37.50/share on a three-year view. Buy.
Recommendation: BUY at 3750c Market capitalisation: R1.202bn
To find out more, sign up for your FREE trial of MoneyWeek Online here.
