American multinational investment bank Citigroup has bet on Absa’s turnaround and strategy reset, increasing its stake in the lender to just above 5%.
The market is warming up to Absa’s interim management after the exit of Arrie Rautenbach, who opted for early retirement after “discussions with the board” as allegations swirled that he had lost control of his executive committee.
Citigroup, which is going through its own restructuring, now owns 5.004% of Absa, a stake worth about R8.2bn according to the lender’s current market valuation of R165bn.
The move by Citigroup comes just weeks after Bank of America Securities labelled Absa as undervalued. It assigned it a “buy” rating with a price target of R228, suggesting a 17% upside from its current share price that flags the lender’s expected return on equity to improve.
Absa interim CEO Charles Russon has taken bold steps to right the ship since taking over the role in October after the lender underperformed the sector for several years.
Russon has been frank with investors about the company’s own goals over the years. In December, he told the investor community that the company was on the right path after some introspection.
“We have also spent time as an exco to review our strategy and to agree a set of medium-term action plans. We recognise that we have disappointed the market, with three profit warnings in 16 months undermining confidence in Absa,” he said.
“We have made some execution missteps in recent years. For instance, we were too slow to adjust and pull back our risk appetite in retail lending in response to the changing macros and to reduce costs in the second half of 2023.
“While our broader strategy is unchanged, certain refinements will drive better profitability in the short to medium term. We have agreed on four strategic execution priorities that we are actively pursuing. Firstly, shifting away from a focus on market share growth to pursuing sustainable growth that delivers profitability at the right returns.”
His commitment to undo past missteps was matched by an announcement that the lender would recombine its three SA retail banking businesses into a single retail bank — a strategic shift to the path followed by Rautenbach.
All eyes are now on Absa’s board, led by Sello Moloko, on who it will appoint as the next CEO, a position that has seen six individuals come and go since 2019. Russon was the sixth CEO, acting or permanent, when he took over the interim role four months ago.
When Maria Ramos retired in 2019 after a decade as CEO, she was replaced temporarily by René van Wyk, who acted in the role for a year. Then the lender roped in former Reserve Bank deputy governor Daniel Mminele as CEO. He lasted 16 months before differences between him and the board emerged over the strategic direction of the country’s third-biggest banking group by assets.
Respected banker Jason Quinn acted in the role until Rautenbach was confirmed as the new CEO in 2022. His early retirement came just months after Nedbank poached Quinn as its CEO, succeeding Mike Brown.
Absa’s interim results for the first half of 2024 were a mixed bag. While peers Nedbank and Standard Bank reported increases in headline earnings, Absa’s diluted headline earnings per share fell 5%.
Shaakir Salie, a research analyst at Aeon Investment Management, said Absa’s attractive valuation, high dividend yield and strong December trading update presented a compelling case for a short-term rebound in its stock. /With Nompilo Goba
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