Our opinion on the current state of ABG

ABSA (ABG) is one of the largest banking groups operating in Africa. It has well-established branches in 12 African countries and representative offices in at least 6 more. It offers a range of products for personal and business banking, credit cards, insurance, and asset management. Obviously, as one of the "big five" banks, ABSA has been impacted by the recession in South Africa and the generally low consumer spending in the economy. The company announced a joint venture with Patrice Motsepe's African Rainbow Energy to launch a R6,5bn renewable energy fund. ABSA is certainly a blue-chip share and is worthy of your attention. The separation from Barclays is now complete. On 31st March 2023 the company announced a BBBEE transaction that will take its Black ownership to more than 25%. In its results for the six months to 30th June 2023 the company reported total income up 12,8% and headline earnings per share (HEPS) up 2,7%. The company's net asset value (NAV) increased 9,2% to 16352c per share. The company said, "The Group’s net interest margin on average interest-bearing assets improved to 4.61% from 4.54%, reflecting higher policy rates. Gross loans and advances grew 8% to R1 300bn, while deposits rose 9% to R1 324bn". The company had to increase its bad debt provision by 68% to accommodate the difficulties which its clients are now having to contend with. The rest-of-Africa operations doubled its profit rescuing the company from the effects of a bad situation in South Africa. The results were relatively disappointing. In a voluntary update for the year to 31st December 2023 the company reported, "...our credit loss ratio is expected to exceed our through-the- cycle target range of 75 to 100 basis points. We expect high single digit growth in operating expenses, resulting in a slightly higher cost-to- income ratio than 2022's 51.2%. We expect to generate a RoE somewhat lower than 2022's 16.4%, but above the Group cost of equity of 14.5%." Technically, the share made a low in March 2020 and then moved sideways for the next six months before beginning a new upward trend which is continuing. We are generally very positive about the potential of banking shares on the JSE. On a P:E of 6,5 and a dividend yield (DY) of 6,69, ABSA looks cheap to us.