Standard Bank, the largest bank in South Africa by assets and operating profits, issued a strong trading update for the five months to the end of May 2022, as well as a solid trading statement for the six months ended June 2022.
Revenue growth exceeded cost growth with Standard Bank committed to containing cost increases to below inflation, resulting in positive Jaws. Management expects some increase in the demand for credit, as well as higher interest rates, in the first half of 2022. This should be positive for both operating margins, operating profit, and will result in HEPS rising by at least 20% to an estimated 860c for the six months to June 2022.
The credit loss ratio is at the lower end through the cycle at 70-100 bps, which also had a positive impact on the group profits. However, this is expected to increase with escalating inflation in food and fuel prices, as well as a further 75bps hike in interest rates.
Standard Bank is one PE of 10.2x and a dividend yield of 5.5%. With its diversified business model, it compares favourably, in this regard, to First Rand on a PE 11.7x and dividend yield of 4.75%.
A turnaround in Liberty's fortunes, due to lower claims, will be helpful for the group. Liberty should do well if the cross-selling of its products into the larger group succeeds, with Liberty now 100% consolidated into Standard Bank as of February 2022. Standard Bank is a great quality business which I hold in segregated portfolios for my clients and is a share which should reward long term investors.