In business, timing is critical. Companies that have taken decades to build can be taken into bankruptcy through injudicious actions are inappropriate times. Even the seemingly impregnable. Ask Anglo American. Or Deutsche Bank. But such insanity tends to happen less often when owners of the business remain the managers. FirstRand, created by entrepreneurs Laurie Dippenaar, Paul Harris and GT Ferreira, is a good example. The company has made its share of mistakes but none of them were ever life threatening. And now that the African hype has been replaced by depression, the group is starting to look seriously at assets it turned away from during the recent bubble. Knowing cool heads with experience and plenty skin in the game are running the show is the best the comfort any shareholder can ask for. – Alec Hogg
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(Bloomberg) — FirstRand Ltd., Africa’s biggest bank by market value, said it’s considering acquisitions in African countries including Nigeria where the slide in oil prices and a devalued currency has undercut prices.
“Asset prices in jurisdictions such as Nigeria have recently become much more realistic,” Chairman Laurie Dippenaar said in the Johannesburg-based company’s annual report, published on FirstRand’s website on Tuesday.
“We feel more comfortable to look for opportunities to deploy shareholder capital for acquisitions to assist us in scaling up our operations. FirstRand remains committed to growing outside of South Africa.”
FirstRand walked away from buying control of Lagos-based Sterling Bank Plc in 2011 because the asking price was too high. The lender’s investment-banking unit is already operating in Nigeria, and in 2012, FirstRand said it was looking for an acquisition to help fund Rand Merchant Bank’s operations in the West African nation. It’s only now that Nigeria’s naira has been devalued and banks’ bad-debt levels are soaring as that economy slows that asset prices have declined.
While FirstRand “will remain disciplined and definitely not squander shareholders’ capital on seemingly cheap earnings,” it sees the rest of Africa as a long-term growth opportunity, Dippenaar said. The lender is “very focused on creating more of a portfolio effect to reduce concentrations and diversify risk.”
South Africa's FirstRand bank is now worth more than Deutsche Bank. By a whisker. South Africa and Europe banks.
— Tom Robbins (@BaragwanathBiz) September 16, 2016
FirstRand pared an earlier gain of as much as 2.1 percent to close 1.2 percent up at 47.55 rand in Johannesburg on Tuesday. That was the smallest increase on the six-member FTSE/JSE Africa Banks Index, which climbed 1.9 percent with Barclays Africa Group Ltd. leading the measure.
Kenyan Ambitions
FirstRand has also expressed interest in expanding in Kenya. In January Chief Executive Officer Johan Burger described the East African nation as a key market and said the company had to find a solution to its dilemma between pursuing organic or acquisitive growth in that country this year. To date, FirstRand only has a representative office in Kenya. With more than 40 banks, Kenya’s market is ripe for consolidation and lenders’ share prices came under pressure after Dubai Bank Kenya Ltd., Imperial Bank Ltd. and Chase Bank Kenya Ltd. were taken over by that market’s regulator.
Capitecs return on equity sits at 28%, higher than FirstRand (23.4%), Barclays Africa (17%), Nedbank (15.7%) and Standard Bank (15.3%)
— Michael Ochieng (@therealochieng) September 16, 2016
Kenya and Nigeria are growing faster than South Africa where there was “a fundamental downward shift in international investor confidence” after President Jacob Zuma fired former Finance Minister Nhlanhla Nene without warning last December, Dippenaar said.
The move “was a body blow to the banking sector which saw billions wiped off valuations,” he said. “The cost of capital has structurally moved higher, which makes it even harder to deliver economic value to our shareholders.”
