Analyst recommendation

                                                                                                           As at 6 March 2025

Executive Summary

On 6 March 2025, FirstRand released its half-year results for 2025. Highlights from the results were as follows:
1. Earnings per share grew by 8% to R3.76, with revenue (+5%) rising more than operating costs (+3%).
2. Net interest income increased by 4%.
a. Average interest earnings assets grew by 4%, with growth across segments. RMB CIB advances was the largest
contributor, growing their end of period balance by 9% year over year, while FNB commercial showed strong
growth of 12% although being smaller in size.
b. Net interest margin was flat at 4.47%.
3. Non-interest revenue increased by 6%, with the net commission and fee income increasing 8% to R20.7b driven by
FNB customer acquisition (+3%), transactional volume growth (+5%) and fee increases. Net commission and fee
income was further helped by RMB’s knowledge-based fee income benefitting from new deal origination
opportunities coupled with an uptick in advisory income.
4. Expenses increased by 3%. Staff costs which represent 63% of operating expenses increased by 3% as annual salary
increases averaging 6% was offset by a decrease in other staff-related costs of 9% due to lower leave pay provisions
and decreased temporary staff costs because of fewer contractors.
5. The impairment charge grew by 8% in line with advances growth with the credit loss ratio at 81 basis points which is
at the lower end of the through the cycle range of 80 to 110 basis points.
6. No additional provisions were made in relation to the UK motor commission matter as the appeal will be heard by the
UK’s Supreme Court from 1 to 3 April 2025.
7. Management’s earnings growth guidance for the full year was upgraded from “at the top end” to “above” the longterm stated target range of nominal GDP +0% to 3%.
For the second half compared to the first half of the 2025 financial year, management guided:
Slightly weaker net interest income growth due to lower interest rates even though deposits and advances are
expected to show similar growth. Growth in fee and commission, insurance, and fair value income will be broadly
similar. However, investment income could benefit from a material private equity realisation in the second half,
resulting in overall higher non-interest revenue growth. Credit performance should trend better than the first half.
With the motor commission matter in the base, operating expenses are expected to increase slightly below inflation,
but if excluded from the base are expected to grow slightly above.
8. We maintained our intrinsic value of R97 and our recommendation at a buy

Analyst thesis

We expect FirstRand to benefit from:
• Its asset-liability management strategy should protect its net interest margin more than peers as interest rates
decrease.
• An improved South Africa outlook as it has a higher exposure compared to some peers.
• Non-interest revenue growth due to non-repeat of fee reductions in FNB supported by customer growth and
volumes combined with potential private equity realisation opportunities in the second half of the year.
• Loan growth as the consumer faces less pressure from inflation and lower interest rates allowing for greater risk
appetite.

Results

Valuation

Table 3: Valuation

Table 6: Valuation multiples

Source: FactSet