| Wed 2 Mar 2005, 10:36 | | FirstRand flush with surplus cash after lucrative |
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FirstRand flush with surplus cash after lucrative first half
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Read The Classic Business Day Interview: FirstRand interim earnings up 23%
$\Stephen Gunnion
Financial Services Editor
FIRSTRAND shareholders may be in for a cash windfall owing to the financial services group’s surplus capital position.
The group has R2,1bn in excess capital, which it says it will either return to shareholders, use for growth or use to reduce its gearing.
Releasing results for the six months to December yesterday, chief financial officer Johan Burger said the group in fact had R4,4bn in surplus capital — but R2,3bn would be used to fund part of an empowerment deal announced last week.
“We have no desire to hold onto capital if it’s not required for growth in the underlying businesses,” Burger said.
He said the group would make a decision on the extra capital by the end of its financial year in June.
FirstRand’s strong capital position comes as the group continues to benefit from strong credit demand and low bad-debt levels thanks to low interest rates and a strong economy.
For the first half of its financial year, net profit rose 37,5% to R3,74bn, although this was inflated by the sale of UK operation Ansbacher last year.
Headline earnings a share, which strip out extraordinary items, were 23% higher, while diluted headline earnings a share rose a lower 21% due to the effect of the group’s share incentive schemes.
Rand Merchant Bank’s profit before tax grew 36%, helped by positive market conditions as well as the growing number of empowerment deals it was advising on and financing.
First National Bank increased profit before tax by 22%, driven by strong growth in home loans and credit cards. Although corporate business did not perform as well, CEO Laurie Dippenaar said this was low-margin business that had been replaced by retail lending with higher margins.
Asset finance unit WesBank increased before-tax profit 33% on a strong demand for car finance.
The group’s insurance and health operations, Momentum, OUTsurance and Discovery, also showed strong growth, helped by a number of new products.
Banking continued to contribute most of the group’s earnings.
“The six months was about good top-line growth in banking and insurance,” Dippenaar said.
Ross Jenvey, banks analyst at Andisa Securities, said the results were “excellent”, with very few negatives.
“They have benefited from good equity markets and RMB is flying.
“It has a very big exposure to private equity and it’s a good environment for that.”
Jenvey said the group’s retail banking operation continued to do very well.
“It’s similar to trends we have seen at other retail banks,” he said. “There’s a bit of margin pressure, but decent advances growth and good credit quality.”
Despite the strong results, FirstRand’s share fell 1% to R13,85 yesterday. Jenvey said the market may have been reacting to the fact that FirstRand had maintained its dividend cover at 2,5 times, after lowering it from 2,85 times last year.
FirstRand said its dividend policy would be reviewed again at the end of the current year.
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