Nedbank Group Ltd. (NED) rose to the highest in two weeks after Barclays Capital rated the stock overweight, the equivalent of buy, in new coverage due to improving profitability after a decade of underperformance.
Shares in South Africa’s fourth-largest bank jumped as much as 1.2 percent to 169.71 rand and closed up 0.9 percent at 169.15 rand in Johannesburg, the highest since March 29.
Nedbank’s return on equity averaged 18 percent between 2005 and 2011, compared with 22 percent for the sector, Barclays Capital analyst Richard Ladbrook said in a research note. Net income for the year through December rose 26 percent to 6.5 billion rand ($820 million) as it expanded its retail banking network and charged clients more for transactions, raising its ROE to 15.3 percent from 13.4 percent, the lender said Feb. 29. The bank is targeting a return on equity of 18 percent to 19 percent, Chief Executive Officer Mike Brown said at the time.
“Nedbank’s historically lower ROE was largely a function of below-peer, post-risk returns on advances and lower levels of non-interest revenue,” Barclays Capital analyst Richard Ladbrook said in a research note. “We expect Nedbank to reach towards the sector average ROE of 20 percent in 2014, mostly driven by anticipated continued success in the retail banking turnaround.”
Ladbrook has a price estimate of 211.72 rand for Nedbank. He recommends investors buy FirstRand Ltd. (FSR), South Africa’s second-biggest banking group, with a 29.87 rand price estimate for the stock, and sell Standard Bank Group Ltd. (SBK), Africa’s largest lender. Shares of FirstRand gained 0.8 percent to 23.90 rand. Standard Bank declined 0.7 percent to 111.15 rand.
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