African Bank Investments Ltd. (ABL), the largest provider of unsecured loans in South Africa, dropped the most in almost 15 years after it cut its dividend by 71 percent following a decline in profit.
The shares fell 21.2 percent to 16.60 rand at 11:54 a.m. in Johannesburg, the biggest drop since August 1998, after the lender cut its interim dividend to 25 cents. Net income for the six months through March fell 24 percent to 1.06 billion rand ($112 million), with credit-impairment charges up 45 percent, the Johannesburg-based lender said in a statement today.
African Bank said that trading conditions would remain “difficult” for the rest of the year after writing off 445 million rand of non-performing loans in March. The lender was also hurt by its furniture retailer Ellerines, which offers unsecured loans, according to Harry Botha, an analyst at Avior Research, with an outperform rating on the shares.
“It’s the dividend, at 25 cents per share or five times covered, and the dividend guidance for the full year of three to four times covered” that is hurting shares, Johannesburg-based Botha said. “The core banking business seems to be fine. It’s the Ellerines portfolio where most of the mess is.”
Nithia Nalliah, the lender’s chief financial officer, said in a conference call today that Ellerine’s “peak trading is usually in the first half so if trading doesn’t improve the view is that there will be a full-year loss in retail.” He added that lending will be tightened in retail operations.
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