Standard Bank moving ahead in Africa

South Africa's biggest bank by assets, Standard Bank, came out with some impressive looking half year results yesterday morning. They managed to grow earnings by 11% to R6.6bn which equated to headline earnings per share of R4.18. The commentary was very interesting. They used phrases such as "the resilience of African economies" and "better governance, continued reform and financial deepening" to describe the African continent which is very encouraging. They operate in these regions so they would know.

The share trades at R94 so annualise these earning and you get a PE of 11.25. Again the norm for a bank operating in this environment. The interim dividend announced was R1.41 with an overall yield of 4.6%. With 2 year treasuries at 0.2% we should be so lucky. The South African banking division did really well, managing to grow 17% while Liberty also showed good growth with a 17% increase in earnings. The rest of Africa which is a lot smaller than the South African division with only 6.4% of earnings decreased 17%. This is not a concern however because the rest of Africa is still in an expansion phase. A lot of capital expenditure is being put into growing their brand and entering into these markets in a continent which is extremely under banked.

They also managed to sell their Russian business and a majority of their Argentinean business to the Peoples Bank of China. This will result in up to $750 mil coming in over the next year and will be focused on more African expansion. I think they have found their niche and they are now going to stick with it. I'm happy with that.

Investment case against Standard Bank. We are not big fans of the big banks. They get too involved in complicated financial dealings which end up getting exposed when times are tough. Don't get me wrong, they make big bucks from this when times are good. But because of what happened in 08 I think these operations will be regulated more and more, hampering any abnormal returns but also saving a financial collapse. Hence they are not going to crumble but they won't shoot the lights out.

Investment case for Standard Bank. Of the big four, this is the one I prefer. I've made it no secret that I'm a believer in the African growth story and Standard Bank are gearing themselves for just that. The relationship with Peoples Bank of China will allow them to fund big Chinese projects in Africa and their South African division is doing well. We prefer African Bank but if you are looking for an alternative, Standard Bank would be it.