Analyst recommendation

                                                                                                           As at 3 April 2025

Executive Summary

On 13 March 2025, Standard Banks released its FY24 results. Highlights from the results were as follows:
1. Net interest income increased by 3% to R101 billion.
a. Average interest earning assets grew by 4%.
b. Net interest margin decreased from 4.94% to 4.90%.
2. Non-interest revenue (NIR), including insurance and asset management, increased by 1% to R80 billion.
a. Banking net fee and commission income (representing 40% of the total R80 billion) increased by 4% (11% in constant currency) due to client and volume growth combined with price increases.
b. Combined net income from insurance and asset management had strong growth (+11%) benefiting from positive market movements while insurance also benefitted from 14% growth in new business value.
c. Other gains and losses on financial instruments were a large detractor, with R1.7 billion decrease, impacted by assets being reclassified resulting in the related income being classified to net interest income in 2024.
3. Expenses remained reasonably flat at R95 billion, driven mainly by currency movements as the group operating expenses increased by 8% in constant currency.
4. The impairment charge decreased by 7% to R15 billion, with the credit-loss ratio declining to 83 basis points (bps). Early arrears and inflows into non-performing loans slowed while the forward-looking provisions improved due to an improved outlook in macroeconomic conditions in South Africa.
5. 2025 financial year management guidance:
a. Net interest income and non-interest revenue to grow mid-to-high single digits.
b. Cost-to-income to be flat or lower.
c. Credit loss ratio to be at the middle of the through-the-cycle range of 70 bps to 100 bps.
6. Management guided a medium term (2026 to 2028) targeted return on equity of 18% to 22% which is higher than their historical target of 17% to 20%.
7. Dividend per share increased by 6% to 1 507 cents per share.
8. We maintained our intrinsic value of R281 with a buy recommendation.

Analyst thesis

Standard Bank is South Africa’s bank with the most exposure to Africa, which provides potential higher long-term growth but also exposes it to currency fluctuations and each country’s specific risks.
• Standard bank’s earnings are more sensitive to changes in interest rates compared to some of its peers. It should face more pressure on its net interest margin in the expected lower interest rate environment.
• The newly provided higher return on equity target aligns it to its peer FirstRand which has a higher pricing multiple and, therefore, potentially warrants a higher multiple for Standard Bank. However, management still needs to deliver on this target which faces some risks such as high trading growth in the base, lower interest rate environment impact on its net interest margin, high inflation in African countries and currency volatility.
• Loan growth and non-interest revenue (from economic activity) should benefit as consumers find some relieve from lower inflation and interest rates. 

Results

Valuation

Table 3: Valuation

 

Source: FactSet