Nedbank headline earnings to rise 21%-26%

NEDBANK’s shares closed R1,10 higher at R178,81 yesterday after the company issued an upbeat trading update.

This contrasts with the rout Absa shares suffered after its recent shock profit warning.

The Old Mutual-owned bank is showing steady growth of its noninterest and interest income, has rehabilitated its once troubled retail unit and is now one of the top picks for analysts tracking its stock. Some analysts are even questioning whether Old Mutual should sell its 55% stake in Nedbank, valued by Nomura at almost £3,5bn.

Nedbank said yesterday diluted headline and diluted basic earnings per share for the six months to June would be between 21% and 26% higher than the 600c and 598c per share, respectively, recorded in the same period last year.

It said the strong performance reported during the first quarter to March had continued in the subsequent months to June.

In its first quarter update, Nedbank CEO Mike Brown reported a 14,9% growth in noninterest revenue to R4,1bn compared with R3,5bn in the corresponding period last year.

This growth was driven primarily by a 17% growth in commission and fee income.

Adrian Cloete, equity analyst at Cadiz Asset Management, said Nedbank’s update was “good” and exceeded management’s medium- to long-term target of earnings growth of 14%.

“The market consensus for the full year to December is for (headline earnings per share) to increase by 21% which means that based on this trading update the sell-side analyst’s consensus forecasts seem fair at this stage.”

Last week, rating agency Fitch upgraded Nedbank's credit ratings, which Mr Brown attributed to the bank’s efforts to expand noninterest revenue and to reposition its retail unit.