FirstRand is reminding the market why it trades at a premium valuation (JSE: FSR)

They are performing ahead of the guidance given in March this year

Of course, the first thing is do is to go and look at what FirstRand told the market in the interim results, as the flavour of the latest announcement is very much that things have improved since then.

Essentially, they guided for weaker net interest income (NII) growth in the second half of the year, but higher non-interest revenue growth, with the credit loss ratio trending lower as well. Operating expenses were expected to increase below inflation (with the motor commission provision in the base – this becomes very important later), while earnings growth should be slightly ahead of the long-term guidance of GDP +0% to 3%. Finally, return on equity (ROE) was expected to be in the target range of 18% to 22%.

So, what’s changed? In terms of the core banking business, FirstRand is telling a more bullish story around loans and advances than we’ve seen at peers, although one has to be careful in interpreting fluffy paragraphs rather than hard numbers. It’s important to remember that FirstRand operates in many more regions than just South Africa, so the comments on loans and advances at e.g. Nedbank give a far more focused view on our country than what you’ll get from FirstRand. Something I will highlight from FirstRand is that demand for home loans has been quite weak, whereas vehicle finance through Wesbank is performing well.

Despite the shift in portfolio mix towards corporate and commercial loans that are typically lower margin than retail loans, FirstRand expects NII to be better than they expected in the March guidance. On the NIR front, they are in line with guidance, thanks to great businesses in the group like RMB.

In terms of the credit loss ratio, they remain at the bottom end of their through-the-cycle range and broadly in line with guidance, although my read on the narrative is that it isn’t going quite as well as they had hoped. Retail impairments are slightly up (driven by macroeconomic volatility) and a recent focus on lending to SMEs has led to a natural increase in risk in the book.

But here’s the big win vs. guidance: operating expenses are “significantly better” than guided. With the UK motor commission provision in the base, operating expense growth has been negative. Even with adjusting for the UK motor commission provision in the base, they are keeping cost growth below inflation. It feels like the original guidance was deliberately conservative around the provision, as at no stage was anyone expecting that costs excluding the provision would be negative. The overall point here is that the provision remains uncertain, with the UK Supreme Court is expected to give judgement at the end of July 2025. Control over general operating costs has been good.

The combination of slightly better NII and much better cost control has led to a sharp increase in guidance when it comes to earnings. They now expect full-year growth of low double-digit to mid-teens, which is well above the long-term growth guidance. ROE is still expected to be in the 18% to 22% range.

This is a good reminder of why FirstRand trades at a premium valuation vs. peers. Simply, it’s a better business.

Primeserv flags higher earnings (JSE: PMV)

Perhaps the share price will see some love on Thursday

Business support services group Primeserv released an announcement after market close on Wednesday that should result in happy shareholders. A trading statement for the year ended March 2025 reveals that HEPS has increased by between 24% and 34% vs. the prior year.

This is an acceleration from the interim numbers, where HEPS was up 17% and the interim dividend increased by 20%, so cash quality of earnings was strong.

Although there isn’t much liquidity in this stock on a daily basis, there is at least some. It will be interesting to see if there’s some share price action on Thursday based on this announcement.

Nibbles:

• Director dealings:
  • Directors of ADvTECH (JSE: ADH) have sold shares worth R4.9 million. This comes after recent sales by directors of a major subsidiary in the group. This is a bearish sign.
  • Christo Wiese has bought more shares in Brait (JSE: BAT), picking up shares worth nearly R1.2 million through Titan Premier Investments.
  • Des de Beer bought shares in Lighthouse Properties (JSE: LTE) worth R860k.
  • An associate of a director of a major subsidiary of PSG Financial Services (JSE: KST) bought shares worth R194k.
  • The CEO of Vunani (JSE: VUN) bought shares in the company worth R65.7k.
• In a weirdly small trade, an associate of Sean Riskowitz bought shares in Finbond (JSE: FGL) worth R1.2k.

• There’s a very interesting new director appointment at Gemfields (JSE: GML). Rational Expectations (one of the two major shareholders that acted as underwriters in the recent rights offer) has appointed Louis du Preez as a board representative. Yes, the same Louis du Preez who was CEO of Steinhoff from 2019 as part of the restructuring of that catastrophe. As a lawyer with immense expertise in restructuring, my read on this is that Rational Expectations has sent in a bulldog to make very sure that Gemfields doesn’t get itself into trouble again. Or, there’s some kind of broader plan afoot to restructure the company. Either way, it’s a director appointment worth mentioning.

• DRDGOLD (JSE: DRD) has announced Henriette Hooijer as CFO Designate. This is an internal appointment, which is always great to see. Current CFO Riaan Davel will step down at the end of the FY2025 reporting season, but will consult to the company until January 2027. Hooijer will take office from 1 February 2026.

• Oando (JSE: OAO) has been catching up on its financial reporting. They’ve finally released the quarterly report for March 2025, so they are now up to date. Although profit more than doubled year-on-year, they could only manage HEPS of 0.01 Nigerian Naira.

• Alexander Forbes (JSE: AFH) obtained approval from the SARB for their special dividend, with a payment date of 21 July.