Barclays Africa Group Ltd. (BGA) is outperforming its South African peers for the first time in three years after backing out of a chase for market share in unsecured lending helped stem bad loans and boost profit.
The bank is the only stock on the six-member FTSE/JSE Africa Banks Index to show gains this year through yesterday’s close, rising 1.5 percent, compared with the gauge’s 7 percent decline. Even so, it’s still the cheapest lender, trading at 8.8 times estimated earnings against an average of 11 times for its three largest competitors, including Standard Bank Group Ltd. (SBK) at 11.4, according to data compiled by Bloomberg.
Barclays Africa “avoided unsecured lending, so it could be seen as a defensive stock as the economy takes a downturn,” Johann Scholtz, head of research at Afrifocus Securities Ltd. in Cape Town, who has a buy rating on the stock, said by phone on Feb. 18. “Levels of profit should now be ahead or in line with the leaders in its sector. Barclays (BARC) Africa is undervalued relative to its peer group.”
Loans not backed by assets surged fourfold in the three years through 2012 as lenders including FirstRand Ltd. (FSR) and Nedbank Group Ltd. (NED) joined a rush by African Bank Investments Ltd. (ABL) and Capitec Bank Holdings Ltd. to add customers as mortgages stagnated. One in every two South Africans with credit are behind on payments, according to the National Credit Regulator, amid the slowest economic expansion in five years, faster inflation and unemployment of about 25 percent.
Barclays Africa dropped 0.9 percent to 133 rand by the close in Johannesburg trading, extending its decline over the past 12 months to 15 percent. Nedbank, the Johannesburg-based lender owned by Old Mutual Plc, fell 0.5 percent to pare its gains over the past year to 4.9 percent. FirstRand, the second-largest South African bank, has climbed 3.4 percent over the period. Barclays Africa reported a 20 percent increase in full-year net income on Feb. 11, the first of South Africa’s biggest four lenders to release earnings.
“Barclays Africa is also trading at a discount on a price-to-book basis when compared to its peers,” Jean Pierre Verster, who helps oversee the equivalent of more than $1.1 billion at 36ONE Asset Management in Johannesburg, said by phone yesterday. “Its financial results highlighted its level of comfort with its very conservative strategy. As interest rates increase, there will be lots of stress in the unsecured lending market.”
Barclays Africa, which bought eight African operations from its U.K. parent last year, plans to expand its corporate- and investment-banking businesses across the continent. In South Africa, the company’s Absa Bank unit is stepping up lending after being toppled three years ago as the nation’s largest provider of home loans and losing customers after tightening credit criteria since 2010.
“It’s had anemic revenue growth out of its core franchise, but amid the negativity people may have missed a trick,” Scholtz said. “They didn’t have a true sense of the companies it bought from Barclays -- some are very profitable.”
Steps to slow lending will pay off, Chief Executive Officer Maria Ramos said Feb. 11, as Barclays Africa predicts more interest-rate increases in South Africa after the Reserve Bank unexpectedly lifted its benchmark rate 50 basis points to 5.5 percent on Jan. 29. Still, only 22 percent of analysts rate the stock a buy, compared with 47 percent at Nedbank, South Africa’s fourth-biggest bank, 40 percent for FirstRand and 28 percent at Standard Bank, the largest African lender.
“We’ve been buying” Barclays Africa shares for the last two weeks, Verster said. “There’s a window of opportunity.”
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