NEDCOR IS WORTH A
CLOSER LOOK.
Trust is at the cornerstone of
banking. Shareholders and
depositors provide capital
and funding to banks with the
confidence that the bank’s
balance sheet will be judiciously
managed and that adequate
capital is held to protect against
unforeseen losses. Back in 2003,
Nedbank failed to deliver on this
mandate to shareholders when it
reported a 98% decline in earnings,
accompanied by a R5bn rights
issue underwritten by its parent,
Old Mutual. A new management
team was appointed under Tom
Boardman and he took to the
podium at the results presentation
to restore investor confidence as he
delivered his Five Point Plan, aimed
at repairing Nedbank’s reputation
as a highly rated and respected
South African bank.
Fast forward some 10 years, and if
one reviews the group’s growth in
earnings, dividend and tangible net
asset value since 2004, it becomes
clear that the Nedbank of today
not only learnt from the mistakes
of the past, but has gone a long
way in strengthening its franchise
and competing effectively on a
sustainable basis.
Over the last 10 years, the group
has grown earnings, dividends
and tangible net asset value at
a compound average growth
rate of 15.7%, 24.0% and
14.1% respectively.
(See: Figure 1)
However, when one assesses
the rating at which this business
is trading today, relative to its
aforementioned track record,
there is a clear disconnect. Since
2006, Nedbank has traded at an
average discount of 24% to the
South African equity market. More
recently, this discount has widened
further to 35%, as is evident from
the following chart. Relative to
the other three banks (Standard
Bank, FirstRand and Barclays Africa
Group), Nedbank is currently at its
Figure 2
deepest discount since the global
financial crisis of 2008.
(See: Figure 2)
When we determine the
appropriate rating for banks, we
consider a number of factors. In
general, we believe that banking
companies should trade at a
discount to the overall market
mainly because of