While the market remains cautious, it's backing new CEO Kenny Fihla to turn the business around.
Picture: iStock
Fund manager Coronation Asset Management has taken a meaningful position in Absa through one of its flagship portfolios, the Coronation Top 20 Fund.
It added the stake in the second quarter of this year (between April and the end of June), making Absa the third banking stock in the fund.
Standard Bank Group is its single largest holding (accounting for 10.7% at the end of June), while Nedbank Group comprises 5.5% of the portfolio.
Portfolio managers Neville Chester, Nicholas Stein and Nicholas Hops said it “initiated a position in Absa during the period, as low market expectations combine with a compelling turnaround story within the SA business and continued success in its African assets”.
“We have been shareholders in Standard Bank for many years, in large part due to its successful African growth story. Absa are a close second from an African franchise perspective, and while the group contribution is smaller at one third of earnings, it offers an additional leg up to earnings growth in the years to come.”
Betting on Fihla
Absa is in the midst of a strategic reset under new CEO Kenny Fihla, who joined the group in 2025 from Standard Bank, where he previously led its Corporate and Investment Bank (CIB) unit, and Coronation says he ran this division with “much acclaim”.
In September 2024, he was appointed deputy CEO of the group and assumed responsibility for its South African unit (SBSA) and its Africa Regions and Offshore businesses.
“Since arriving, he has focused the business and brought in new talent to help grow the CIB and African businesses,” says Coronation.
Fihla has recruited a sizeable roster of talent, primarily from Standard Bank.
These include Zaid Moola (CEO of CIB), Sola Adegbesan (managing executive for CIB Africa Regions), Leon Barnard (Pan-African CEO of Business Banking), Clive Potter (managing executive: Client Coverage, CIB), Francisco Khoza (general counsel, Wealth and Investment Management), Musa Motloung (group strategic risk officer) and Avikaar Ramphal (head of strategic risk).
Sitoyo Lopokoiyit was recruited from Safaricom (where he ran M-Pesa) and started as the CEO of Personal and Private Banking (PPB) in April.
Strength of retail
The group tempered growth expectations for 2026 in a trading update in June, forecasting low- to mid-single-digit revenue growth. Its return on equity target for the year was lowered to 15% (from 16% to 17% previously).
Coronation says: “We have been sceptical over the strength of Absa’s South African retail franchise for a long time, and this view has been vindicated as it has shrunk itself to a near immaterial portion of earnings.”
In 2025, its PPB unit in South Africa accounted for only 28% (R7.5 billion) of the group’s R24.8 billion in headline earnings. This division’s profit grew by 7%.
By contrast, Absa’s CIB unit contributes almost double that profit number (it was 48% of headline earnings), with the Business Banking and so-called ‘Africa Regions’ (spanning personal, private and business banking ) units making up the rest.
Together, the latter two segments are nearly 24% of headline earnings (nearly as sizeable as the SA retail business), with the Africa Regions unit by far the fastest growing in the group (up 51% in 2025).
Attractive valuation
Coronation believes that on “a 7x price-to-earnings [PE] ratio and 8-9% dividend yield, the market is taking a very cautious view on Kenny’s ability to turn the business around”.
“If he is successful, Absa will provide excellent returns from this base, with the high dividend yield providing some downside protection in the event of the turnaround struggling.”
At current prices, the bank is trading on a dividend yield of 7.3% and a forward PE of 6.69.
The Top 20 Fund, which will typically hold shares in a maximum of 20 companies on the JSE, has R34.6 billion in assets under management.
It notes that “its investments will therefore always be concentrated and limited to shares in large companies listed in South Africa”.
Core holdings
Coronation says that while it remains “cautious as economic pressures have risen this year” and banks are exposed to the economy, “they also offer a large degree of annuity income and high dividend yields which can bolster shareholder return in the event of a worse-than-expected earnings environment”.
“The same can be said for Sanlam, which remains a core holding in the portfolio. Like Absa and Standard Bank, Sanlam has an equally strong growth outlook in its African and Indian businesses – turning a mature SA earnings stream into a potential double-digit earnings growth outlook.”
Sanlam comprises 5.2% of the fund, with financials its largest sectoral exposure (at 28.2% of the Top 20 Fund).
Coronation says the fund retains “some exposure to consumer-focused turnaround stories, Spar and Woolworths”, but that the bulk of its SA consumer exposure “remains defensive and high-quality in nature”.
This article was republished from Moneyweb. Read the original here.
