Nedbank CEO Mike Brown, while delivering robust results for the year ended December 31, 2022 yesterday, called for urgent and decisive leadership on Transnet’s woes, load shedding and water infrastructure.
Brown said the network infrastructure provided largely by state-owned monopolies, which were needed to enable higher levels of gross domestic product growth and sustainable job creation in South Africa, had been deteriorating over many years.
"In addition, municipal service delivery is poor, and levels of crime and corruption are unacceptably high. Progress on structural reforms to address these matters has been far too slow, and the will of the political and public sector to make meaningful changes is uneven and actual delivery is poor," he said.
Brown said: "This cannot continue, and more urgent and decisive leadership and action are required. Nedbank remains committed to working with all like-minded South Africans to accelerate delivery of structural reforms in these key areas".
Brown said in 2022, the South African economy faced multiple global and domestic challenges, including the war in Ukraine, lockdowns in China, slower global growth, lower commodity prices, destructive floods in KwaZulu-Natal, persistent power outages that accelerated in the last quarter of 2022, as well as 325 basis points (bps) higher interest rates and inflation that peaked at 7.8% in July.
"Despite this difficult and uncertain environment, the economy was resilient and is forecast to have expanded by 2.3% in 2022," he said.
However, Brown said against the challenging macroeconomic backdrop, Nedbank group’s 2022 financial performance was strong, as headline earnings grew by 20% to R14 billion and return on equity (ROE) increased to 14% (2021: 12.5%), but remained below both the 2019 level of 15% and its estimated cost of equity (COE) of 14.9%.
Nedbank increased its final dividend by 14.3% to 866 cents and the full-year dividend by 38.5% to 1649 cents.
Revenue rose by 10.5% to R63.6bn and net asset value per share advanced 5.1% to 21533c.
Looking ahead, Brown said: "We currently expect the economic environment in South Africa (SA) to remain challenging, particularly given the high levels of electricity shortages that we expect to continue.
"The Nedbank Group Economic Unit forecasts SA’s gross domestic product (GDP) to increase by only 0.7% in 2023; interest rates to increase by a further 50 bps from December 2022 levels, taking the repo rate to 7.5% and the prime lending rate to 11.0% by the end of the year; and for inflation to reduce from 2022 levels and average 5.5% in 2023," he said.
Brown said that given Nedbank's strong 2022 performance, it had set its revised medium-term (2025) and long-term targets.
"In 2025, we aim to achieve an ROE of 17%, around COE plus 2%, and a cost-to-income ratio of 52%. Over the longer term, we aim to improve these to above 18%, around COE plus 3%, and below 50%, respectively. Achieving these targets should be value-creating for shareholders," he said.
Umthombo Wealth chief investment officer Alex Duys said: "Despite the extremely difficult economic environment, Nedbank delivered very good results in our opinion and the business is well positioned for the medium term".
Duys said Nedbank delivered strong revenue growth, which enabled it to produce a very commendable 15% growth in pre-provisioning profit.
"A strong balance sheet and excess levels of capital enabled the group to declare a record-high final dividend of 866 cents per share as well as announce an R5bn capital optimisation," he said.
Duys said Nedbank had revised its medium-term (2025) and long-term targets and, “we believe if they can execute them, Nedbank still offers a very attractive investment thesis at current valuation levels.”
BUSINESS REPORT