Recession hurts ‘banking’ shares

Capricorn, FirstRand ‘busy correcting’

11 September 2018 | Sakenuus
Jo-Maré Duddy – The share prices of both Capricorn Investment Group and FirstRand Namibia last week closed at the its levels in years, a reflection that tough economic times are expected to continue.

FirstRand Namibia, previously FNB Namibia Holdings, Friday closed at N$44.50 per share on the Local Index of the Namibian Stock Exchange (NSX), a drop of 39c or 0.9% compared to the previous week’s closing price. Capricorn shed 38c or 2.3% to close the week at N$16.49 per share.

“The prices came down slightly in the last few days, but the share price has been correcting since the start of the year. Capricorn is down 8.3% while FirstRand is down 4.6% year to date,” says Dylan van Wyk, senior analyst at Cirrus Capital.

The N$2.13 per share which FirstRand lost from the end of last year to Friday’s close means the group’s total market capitalisation fell by about N$570 million. Capricorn’s share price drop of N$1.51 resulted in its total market capitalisation shrinking by some N$743 million.

At the close of business Friday, FirstRand’s total market capitalisation stood at approximately N$11.9 billion, still the biggest on the Local Index. At about N$8.56 billion, Capricorn was the third biggest. Namibia Breweries, with a total market cap of nearly N$9.3 billion, was the second biggest company.

Commenting on FirstRand and Capricorn’s share price movements, Van Wyk said: “For the most part, share prices reflect the expected future cash flows that can be generated from a security, which is greatly influenced by the expected growth rates in distributable profits.

“On that note the lower share prices reflect the slower expected growth in private sector credit extension as well as the economy as a whole,” Van Wyk said.

The latest figures released by the Bank of Namibia (BoN) show private sector credit extension (PSCE) grew by 6.3% on an annual basis in July. In July 2017, growth was 6.6%.

“From January to July 2018 the PSCE growth averaged 6.0% compared to a high of 16.0% seen in 2013 and 2015,” Simonis Storm says in its latest Fixed Income and Economics Report.


Megameno Shetunyenga, analyst at Simonis Storm, says share prices dropped in line with the decline in normalised earnings, which are a reflection of a more challenging macroeconomic environment.

“We like the fact that it’s finally being reflected in share performances,” Shetunyenga says.

For its financial year ended June 2018, FirstRand reported a decrease in basic earnings per share (EPS) and headline earnings per share (HEPS).

FirstRand’s EPS was 398.1c, nearly 5% lower than that of 2017. The group’s HEPS - the most widely watched profit gauge which strips out certain one-off items – was 397.9c, down 4.4%.

Capricorn reported an EPS of 180.6c for its 2018 book-year, an increase of 0.1% compared to the 2017 financial year. HEPS came in at 157.9c, 13.1% lower than the previous year.

Van Wyk says “my feeling has always been that the Namibian banks have robust business models. One should concentrate on the long term, through the cycle, earnings potential of these entities, which I believe remain intact”.

“The next couple of years may not shoot the lights out, as growth expectation remain low. However, if prices continue to correct, it may present a good valuation level to buy these securities,” he says.

Simonis Storm currently has a “sell” recommendation for both FirstRand and Capricorn. Its target price for FirstRand is N$41.00 per share, and for Capricorn it is N$16.755c.



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