Global Bank Equity Specialist, Creative Portfolios

Paul Hollingworth

Global Bank Equity Specialist

Creative Portfolios

Equity Bottom-Up

<p>The South African banking sector is an independently regulated market with an appealing market structure. However, serious political, economic, and social challenges and risks remain. Another ratings downgrade would test South Africa’s banks somewhat but will not undermine their resilience given their track record in managing complexities and risks. High capital buffers, sound regulation and supervision have helped mitigate risks at home. Opportunities are evolving at the main banks in less financialised Pan-African markets.</p><p><a href="https://www.smartkarma.com/entities/24988" target="_blank" data-smartkarma-citation="entities:24988:1">Standard Bank Group Ltd (SBK SJ)</a> is the South African lender that impresses most at this juncture. This is a quality EM bank. Results in 2017 show stellar fundamental momentum.  Standard’s PH Score™ was one of the highest globally, a strong quintile 1 performance, and bettered that of Nedbank (also improving) and FirstRand (disappointing).</p><div class="content-highlight"><p><em>The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage. Scores lie between 0 and 10, with higher scores representing more positive signs. Standard scores 9.1.</em></p></div><p>Boosted by less political negativity at home, and hopes of a more reform-minded government, shares have had a strong run of late and should be considered on any weakness emanating from political complexities and/or a negative ratings assessment. Bank shares have fluctuated with sovereign downgrades, Pravingate, Steinhoff, and ANC machinations.</p><p>Already commanding positive “jaws” (revenue growth minus expenses growth) and a high ROE, we believe that Standard will extract greater efficiencies and profitability moving forward. The Balance Sheet is highly robust and liquid. Consumer credit in South Africa is severely depressed by historical levels after a prolonged deleveraging phase, and can revive over the medium-term. Growth especially across Africa (30% of earnings) offers upside/potential.</p><p>The stellar PH Score™ at Standard signifies a strong share price performance over the next 12 months - especially if the “Ramaphosa bounce” has legs.</p>

The South African banking sector is an independently regulated market with an appealing market structure. However, serious political, economic, and social challenges and risks remain. Another ratings downgrade would test South Africa’s banks somewhat but will not undermine their resilience given their track record in managing complexities and risks. High capital buffers, sound regulation and supervision have helped mitigate risks at home. Opportunities are evolving at the main banks in less financialised Pan-African markets.Standard Bank Group Ltd (SBK SJ) is the South African lender that impresses most at this juncture. This is a quality EM bank. Results in 2017 show stellar fundamental momentum.  Standard’s PH Score™ was one of the highest globally, a strong quintile 1 performance, and bettered that of Nedbank (also improving) and FirstRand (disappointing).The PH Score™ is a fundamental momentum-quantamental score that scores banks according to changes in value-quality. The Score encompasses Profitability, Operating Efficiency, Liquidity, Capital, Asset Quality, and Coverage. Scores lie between 0 and 10, with higher scores representing more positive signs. Standard scores 9.1.Boosted by less political negativity at home, and hopes of a more reform-minded government, shares have had a strong run of late and should be considered on any weakness emanating from political complexities and/or a negative ratings assessment. Bank shares have fluctuated with sovereign downgrades, Pravingate, Steinhoff, and ANC machinations.Already commanding positive “jaws” (revenue growth minus expenses growth) and a high ROE, we believe that Standard will extract greater efficiencies and profitability moving forward. The Balance Sheet is highly robust and liquid. Consumer credit in South Africa is severely depressed by historical levels after a prolonged deleveraging phase, and can revive over the medium-term. Growth especially across Africa (30% of earnings) offers upside/potential.The stellar PH Score™ at Standard signifies a strong share price performance over the next 12 months - especially if the “Ramaphosa bounce” has legs.

Global Head of Research, Smartkarma

Mark Artherton

Global Head of Research

LR Research

Thematic (Sector/Industry)

<div class="content-highlight"><p><strong>1.  Artificial Intelligence drives down wages.</strong>   The Economist wrote an article showing how Artificial Intelligence (AI) is creating new jobs.  AI algorithms need constant checking and feeding to ensure they are OK, rather like babies.  The creators of these algorithms outsource these tasks to low paid workers in around the world.  Individual tasks are repetitive and dull, but they appear to be the kind of 'repetitive and dull' that computers cannot do.  It is an amazing ecosystem - very similar…</p></div>

1.  Artificial Intelligence drives down wages.   The Economist wrote an article showing how Artificial Intelligence (AI) is creating new jobs.  AI algorithms need constant checking and feeding to ensure they are OK, rather like babies.  The creators of these algorithms outsource these tasks to low paid workers in around the world.  Individual tasks are repetitive and dull, but they appear to be the kind of 'repetitive and dull' that computers cannot do.  It is an amazing ecosystem - very similar…

South Africa

Nedbank Group Ltd is a bank holding company which provides personal, commercial, corporate and merchant banking, fund management and related financial services throughout South Africa. In addition, Nedbank operates internationally through offices in London, Isle of Man, and  subsidiaries and associates in sub-Saharan Africa.

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Nedbank (NED SJ)

Standard Bank: Standard Practice

The South African banking sector is an independently regulated market with an appealing market structure. However, serious political, economic, and...

Paul Hollingworth

21 Things Worth Knowing (#6)

1. Artificial Intelligence drives down wages. The Economist wrote an article showing how Artificial Intelligence (AI) is creating new jobs. AI...

Mark Artherton

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