You can start to see a common trend in the results of different companies in various business sectors. Figures show that 2020 was a disaster, while 2021 showed a strong recovery, depending on whether the administration took decisive action.
Banking and asset management group Sasfin announced on Tuesday that it has returned to profit after reporting a large loss in 2020. Top earnings recovered to R141 million and top earnings per share to R4.38 in the year to the end. June 2021 compared to a loss of R48.6 million (overall loss of R1.51 per share) in the previous year.
Strong recovery (Rm)
|12m to June||2021||2020||% change|
|Income||1 303||1 167||11.7%|
|Operating profit||118||– Sixty-five||> 100%|
|Profits||78||– 43||> 100%|
|Title EPS||R4.38||-R1.51||> 100%|
|12 m high||R30.00|
Source: Sasfin Annual Results, JSE Market Data
Sasfin CEO Michael Sassoon says the main reason for the loss in 2020 was a large increase in credit losses.
“There were two reasons for this. First, arrears increased due to the first strict lockdown, and second, adjustments based on the forward-looking nature of the provisions.
“Sasfin also revalued its private equity portfolio at the time to reflect the weaker economic outlook,” says Sassoon.
Since then, the situation has improved significantly, despite continued economic uncertainty and subsequent Covid-19 restrictions.
Sasfin’s results show that most of its businesses performed better, especially the asset finance segment, and management noted that the global and South African economies have actually performed better than anticipated.
“At the local level, this was due to the strong performance of the commodities sector along with some of the early government interventions, including lowering interest rates and fiscal stimulus,” according to the comment to the results.
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Management notes that operating conditions in the second half of fiscal 2021 were better than originally anticipated at the start of the Covid-19 pandemic. This is evidenced by upward projections for GDP growth, with early government interventions to stimulate growth and increased deployment of vaccines across the country.
Sassoon says that the indisputable proof of the recovery is that the accounts that were in arrears were updated. “The credit reality improved.”
A note to the balance sheet reveals that loans classified as doubtful decreased from R712 million a year ago to R611 million.
Sasfin mentions that the Land Bank recently repaid R41.4 million of the outstanding capital of the Land Bank bills held by Sasfin, 10% of the amount owed. The gross amount of Land Bank invoices at the end of the year amounted to almost R416 million, before the Stage 3 deterioration of more than R121 million.
A brief interview with Sassoon created the impression that more was needed than just waiting for things to normalize. Efforts focused on reducing operating costs across the group, including restructuring and re-evaluating entire operating units.
“Sasfin simplified their business structure to match our view that the economy is still very fragile and that we expect the business environment to remain tough,” says Sassoon.
During the year under review, Sasfin concluded several transactions to streamline business and optimize the group’s capital structure, including:
- Sasfin Wealth sold its 21% stake in Efficient Group for R146.2 million, resulting in an after-tax profit of R12.2 million. The proceeds were distributed to Sasfin Holdings.
- Sasfin closed its Hong Kong operation, Sasfin Asia Limited. Foreign trade finance operations moved to South Africa, releasing $ 12 million of capital to Sasfin Bank Limited. A one-time cost of R30 million was incurred as a result of the reversal of hedging reserves and foreign currency translation.
- Sasfin sold 100% of Sasfin Commercial Solutions, with a small loss, but released R30 million of capital.
Sasfin recently completed the buyback of its preferred shares. While listed preferred stocks were very popular with investors when commercial banks and some other companies first listed them about 20 years ago, they have lost some of their appeal.
Sassoon says Sasfin decided to buy back its preferred shares as it became a costly source of capital, while regulatory changes excluded preferred shares from Tier 1 capital.
“The low share price offered an opportunity to offer shareholders a premium and liquidate the expensive source of capital,” he says.
The buyback reduced debt by about R145 million, minus the transaction implementation costs.
Sassoon seems quite optimistic about the outlook for the next year or two, saying that the Covid-19 pandemic and the work-from-home trend also present opportunities. Coincidentally, Sasfin’s lease at his head office just expired after 14 years, and he took the opportunity to opt for a hybrid work model.
“We expect no more than 60% of our staff to work from the office at any one time. This allowed us to reduce office space and ensure that the space is properly designed to support a hybrid work model.
“This will result in an improved value proposition for employees while generating efficiencies,” says Sassoon.
On the business front, it says that new business volumes are approaching 2019 levels, while the investment and brokerage segments also rebounded, with assets under management and advice increasing by more than R5 billion to R53, 9 billion.
The improvement in earnings and optimism about the future translated into a sizeable dividend and the board declared a final dividend of R1.31 per share, equivalent to a dividend yield of 5% on the current share price of R26. twenty. Sasfin last paid a dividend (48 cents) over the six months through December 2019.
Investors seemed happy with the results as the stock ended the day almost 9% stronger, and not far from its yearly high of R30. It is significantly better than the low below R13 about a year ago.