Banking, Earnings drivers subdued
We have updated our estimates and valuations for the big four banks. The banks are not particularly pricey by historical metrics and do offer value to a greater or lesser extent, with FirstRand retaining a premium rating, ABSA the least expensive and Standard and Nedbank making up the middle ground. All four share prices have eased back in the past month. However, earnings drivers remain weak with scope for bad debt charges to rise. Disruptive trends in the sector are a headwind for traditional players and limit scope for market share gains. All banks now have common reporting under IFRS 9 with effect from 2018. We see compound earnings growth for the big four over three years of 8%, which compares with our estimate of 16.7% for Capitec.
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