← Back to Investments

ABSA GROUP LIMITED

ABG JSE Listed

Investment Analysis: Absa Group Limited (JSE: ABG)

Step 1: Data Gathering & Source Verification

Reporting Periods Reviewed:

Key SENS Announcements (Last 12 Months):

  • 08 Dec 2025: Voluntary Trading Update (Year ending 31 Dec 2025).
  • 19 Aug 2025: Declaration of Interim Ordinary Dividend (785 cents).
  • 19 Aug 2025: Interim Results for the period ended 30 June 2025.
  • 11 Mar 2025: Final Dividend Declaration (775 cents) and FY24 Results.

Step 2: Metric Extraction

| Metric | Value | Notes & Analysis | | --- | --- | --- | | Market Cap | R219.0 Billion | Top 40 constituent. Large-cap stability. | | Share Price | 24,467 cents | (ZAR 244.67) As of Jan 9, 2026 close. | | Dividend Yield (L12M) | 6.4% | Healthy. Based on Interim 2025 (785c) + Final 2024 (775c) = 1,560c total. The payout ratio remains sustainable at ~56%. | | Liquidity Check | High (Liquid) | Average daily value traded >R350m. Highly liquid, suitable for institutional size positions. | | P/E Ratio | 8.4x - 9.0x | Based on TTM HEPS of ~2,920c (H2 '24: 1,566c + H1 '25: 1,354c). Trades at a discount to FirstRand (~12x) and Capitec (~20x+). | | Net Asset Value (NAV) | ~27,800 cents/share | Discounted. The stock trades at a Price-to-Book (P/B) of ~0.88x, implying you are buying the bank's equity for 88 cents on the Rand. |

Step 3: Operational & Strategic Analysis

Business Overview Absa is a diversified Pan-African financial services group. While South Africa (RBB and CIB) remains the core engine, the "Absa Regional Operations" (ARO) in markets like Kenya, Mauritius, and Botswana are increasingly critical for growth.

Performance Trend (Interim H1 2025 vs H1 2024)

  • Earnings Expansion: Headline Earnings Per Share (HEPS) grew by 14% to 1,354 cents (vs 1,188c in H1 2024). This signals a strong recovery from the "disappointing" first half of 2024.
  • Credit Quality: The Credit Loss Ratio (CLR) has improved, trending down towards the target range (85-100bps) after spiking in 2023/24. This is the primary driver of profitability—fewer bad debts directly boost the bottom line.
  • Efficiency: The cost-to-income ratio remains sticky around 52-53%, under pressure from continued investment in digital channels and IT infrastructure.

Sector Context

  • Interest Rate Cycle: South Africa is currently in a cutting cycle (2025-2026). While this slightly compresses net interest margins (NIM) for banks, it drastically reduces bad debts (impairments) and spurs loan growth. For Absa, the benefit of lower impairments outweighs the lower NIM.
  • Two-Pot Retirement System: The liquidity injection into the consumer economy from retirement withdrawals (started late 2024) is aiding debt repayment and retail consumption, supporting Absa's Everyday Banking division.

Step 4: The Verdict

Bull Case (Buy Argument)

  • Valuation Re-Rating: Absa trades at a persistent discount to its peers (Standard Bank and FirstRand). With ROE (Return on Equity) recovering toward 15-16% and a 14% earnings growth trajectory, the gap should narrow. A re-rating to 1.0x NAV (Book Value) would imply a price target of R278.00.

Bear Case (Sell/Avoid Argument)

  • Execution Risk: The group has seen significant leadership turnover (CEO/Board changes in 2024/25). Strategy shifts often disrupt momentum. Additionally, exposure to African markets (while a growth lever) introduces currency volatility and hyperinflation risks (e.g., Ghana/Nigeria exposure).

Fair Value Estimate

  • Target Range: 26,500c - 28,000c
  • Rationale: Based on a conservative 9.5x P/E multiple or closing the discount to Book Value (NAV).

Final Rating: Buy

  • Justification: Absa offers a "double engine" return: a solid 6.4% dividend yield plus capital appreciation potential as it catches up to its peer group's valuation. The improving credit environment in SA (lower rates) acts as a strong tailwind for 2026.
AI Generated Analysis Last Updated: 2026-01-14