It hasn’t been an easy ride for the local subsidiary of UK’s faltering Barclays Bank group. But although concerns remain about the continued distribution of capital to the needy UK parent, the old Absa Bank now looks to be settling into stride. Barclays Africa CEO Maria Ramos has had to grit her teeth through some difficult times, not helped by inheriting an executive team that was at best stand-offish towards the controlling shareholder. Judging by the views expressed in my CNBC Africa interview with Old Mutual’s head of equity research Tracy Brodiaz, Ramos’s efforts are starting to bear fruit. Her new team, too, is starting to hit its straps with positive reports heard about former Standard Bank star Craig Bond and newly appointed deputy CEO Dave Hodnett. Reading between the lines from this interview, it may well be time for far-sighted investors to begin nibbling at Barclays Africa. The R108bn business has lost 23% in value over the past year. With profitability recovering and targeted to go higher in 2014, there is now clear upside. – AH
ALEC HOGG: Barclay’s Africa posted its first earnings since Barclays sold most of its African operations to what is now Barclays Africa. Joining is for more is Tracy Brodziak who is Portfolio Manager at Old Mutual Investment Group’s Equity Division in Cape Town – or Pinelands, I guess – to be more specific. Tracy, an overall view on the numbers Maria Ramos has had the privilege of delivering this morning: were they up to your expectations?
TRACY BRODZIAK: Yes, I actually think they were a very good set of numbers. They came out about just over a week ago with the trading update, saying that it’s going to be up 13/14 percent. They actually delivered diluted HEPS up 14 percent so at the top end of the guided range. Before the trading statement that was probably a couple of percent above consensus broker expectations, so I think it was a pretty solid set of results.
ALEC HOGG: If you unpack the retail sector, they do seem to be come under a little bit of stress there; not surprising, given the growth of Capitec and the success of FNB. Is this anything to be concerned about yet? 
TRACY BRODZIAK: Yes, I think if you look at Barclays Africa Group, there are two main concerns that the market has with the company, which is why it hasn’t performed very well over the past 12 months (see graph right). I think the first concern has really been the level of provisioning, how goodhas it been – and what’s going to happen to its bad debt ratio. I think these results show that they’ve done a lot to clean up the book. Non-performing loans dropped off significantly. They increased their provisioning coverage on performing loans, and they have very good coverage on the non-performing loans. I think the second concern the market has had with Barclays Africa Group, is just what’s happening with its retail division, and you see very muted revenue growth out of there. They’ve lost many customers, and they’ve lost their way a little bit. I think what’s encouraging with these results, is that you’re seeing some tentative signs of recovery, so you’re seeing some increase in loan growth. You’re seeing a stabilisation in the customer numbers. I think they still have some way to go, but I think they are at least moving in the right track and that’s pretty positive.
ALEC HOGG: Well, the market agrees: 4.5 percent improvement in the share price this morning. In fact, it was even higher than that at one point. The succession planning – the appointment of a Deputy Chief Executive…
TRACY BRODZIAK: Well, I think they used to have a position like that – Louis von Zeuner was it, before – so I think they’ve just moved Dave Hodnett into it and I think he’s a very capable person.
ALEC HOGG: So the market will not look at that one way or the other. It doesn’t mean Maria’s going to be riding off into the sunset any time soon.
TRACY BRODZIAK: Well, I think that Maria (Ramos) is quite determined to show that Barclay’s Group Africa is turning around. I think they are making progress on it. I think they still have some way to go. They’ve put out a target of reaching an 18 to 20 percent ROE by 2015. They’re currently on about 15.5, so they’re making progress but they still have some way to go and I think she would want to be part of that journey. Obviously, I don’t know what her plans are, further than that.
ALEC HOGG: Tracy, what about the dividends that are being paid to the UK? There are two schools of thought there. We do know that Barclays – the parent company – is short of capital. It needs every cent it can get. On the other hand, if there’s too big a dividend stream that goes to the UK, it might depress the growth prospects of what used to be Absa and is now Barclay’s Africa. What is your take on all of that?
TRACY BRODZIAK: Well, when companies such as Barclay’s Group Africa have asked for my opinion, I’ve always said I would prefer it if you could retain the capital and you can grow it at a high ROE, because that’s actually more value-creative to shareholders. However, if you can’t grow it, then rather return it to shareholders. I therefore think we’ve had quite a tough environment in South Africa. They haven’t grown assets very strongly over the last few years, and they do generate a lot of capital, so they’ve had a significant build-up of capital. I think it was definitely the right decision to pay a special dividend, and you can see they’ve reduced the dividend cover even further. Despite that, the capital ratios are still very, very strong. I therefore don’t think the increase in dividend has anything to do with its parent company. I think it has to do with the specific circumstances in South Africa. Now, the ideal scenario would be if South African economic growth and their growth prospects increase significantly, and they would need that capital. If not, they still have a very solid capital base, which will at least mean you’re guaranteed that dividend plus growth, going forward.
ALEC HOGG: But surely, you would think that the African continent – and I was reading something again yesterday that said ten of the 11 fastest growing economies in the next decade are going to be African. The only outlier is India. If you’re well placed in the African continent and you have this rapid growth, isn’t it going to need funding?
TRACY BRODZIAK: Well, I think they generate enough capital internally to fund their African growth. In the results presentation, someone did ask them ‘you know, you’re still way above where you would like to be on your capital targets. Is there another potential for a special dividend?’ They were quite emphatic about saying ‘we’re going to wait and see because we may need it for Africa’, so you have that sort of war chest in terms of good capital ratios at the moment, plus they are generating a significant amount of capital, going forward. I therefore think they have enough to be able to fund that internally.
