Absa Group (ABG) H2 2023 earnings summary

Executive summary

• Normalised headline earnings rose 1% to R20.9bn, below expectations; ROE was 15.3%, above cost of equity, while credit loss ratio increased to 118bps.

• Pre-provision profit grew 6% to over R50bn and revenue increased 8%; earnings growth was supported by net interest income and Africa regions.

• FY23 results reflected South African consumer stress and significant investment in the franchise; 2024 guidance anticipates improving credit costs and stronger H2 earnings growth.

Financial highlights

• Normalised headline earnings were R20.9bn versus R20.7bn in FY22; normalised diluted HEPS was 2,477c, up 1%.

• Normalised revenue grew 8% to R104.6bn; net interest income was R67.9bn and non-interest income R36.6bn.

• Pre-provision profit increased 6% to R50bn; operating expenses rose 10% to R54.5bn and the normalised cost-to-income ratio was 52.1%, versus 51.0%.

• Dividend per share increased 5% to 1,370c; net asset value rose 8% to R168.28 per share.

Outlook and guidance

• FY24 revenue growth expected in the high single digits, driven by net interest and non-interest income; growth is expected to be slower in H1 against a high FY23 base.

• Customer loan and deposit growth expected in the high single digits; credit loss ratio to remain above the 75–100bps through-cycle range but improve slightly YoY.

• Operating expense growth expected in the mid- to high single digits, with an improved cost-to-income ratio and high single-digit pre-provision profit growth.

• ROE expected at 15%–16%, with H1 below that range; CET1 expected in the top half of the 11.0%–12.5% target range and payout ratio near 55%.

• Earnings growth expected to be dampened in H1 by FY23 base effects, then improve in H2 as pre-provision profit strengthens and credit loss ratio declines.