SASFIN HOLDINGS
Growing ambition
By Stephen Cranston
The top-performing bank in SA over the past year, if the microlenders are excluded, is likely to be a small operation off Johannesburg's N1 highway oppo site Melrose Arch.
Sasfin is best known for its electronic rand/dollar sign on the highway and next to the airport (at the head office of its Premier Freight subsidiary). For more than a decade it has caused motorists to break into a sweat.
Sasfin actually increased its headline earnings in the year to June, by 2% to R154m. Its banking units' profits were up 33% to R126m. It was its more recent diversifications, over the past 10 years - such as the MDM private equity fund headed by Malcolm Segal and the private client division of stockbrokers Frankel Pollak - which reported declining earnings.
Sasfin was started by the Sassoon family, originally from Baghdad. The family closed down its textile trading business in the 1970s. Roland Sassoon, the current group CEO, set up a trade finance business, and soon the core activity was leasing office equipment. To help fund the book of office equipment (now worth more than R1,1bn) Sasfin launched the first securitisation in SA in 1991, the equipment was sold into a special purpose vehicle (SPV) and units of the SPV are bought to earn interest by institutions.
In November 2008, not long after debt capital markets froze, Sasfin managed to refinance R700m of securitisation paper and to place an additional R200m. Sassoon says Sasfin is paying out higher rates, but it can still make an attractive return to shareholders.
"We have such a wide client base that risk of a large part of the portfolio defaulting is negligible," says Sassoon.
Sasfin has not escaped impairments it increased fourfold from R4,3m to R18,8m but its bad debt ratio is barely 1% (Nedbank's is 1,5%).
It calls itself a bank for entrepreneurs and it focuses on the small and medium enterprise sector. Apart from equipment rental finance, it has a broader business finance division which together increased earnings by 7% to R65,5m. It is increasing market share in equipment rental.
Sassoon says that Sasfin has no plans to move into retail banking with a large branch network or get too clever by moving into exotic areas of finance.
"We need to be able to remain close to our clients and that means meeting them face to face. And we need to be close to the products we sell."
Sassoon says that all Sasfin's products are designed to appeal to the typical entrepreneur. Premier Freight does the freight forwarding and clearing. It may not offer retail banking, but it offers private stockbroking and portfolio management as well as financial planning and wills and trusts. It can even offer short-term insurance and medical aid broking services. There is a corporate finance division and JSE sponsorship for the day the entrepreneurs choose to list on the JSE and a private equity division for the day they may want to take their companies off.
Sasfin signed a deal with the International Finance Corp, part of the World Bank, which will provide new equity and debt capital.
The bank will be a very well capitalised business, with total capital adequacy of 35% (Nedbank is typical of the big banks with 13,2%). Sassoon says the bank would not accumulate this level of capital if it did not have ambitions to grow.
Investec, after all, had similar roots as a trade finance and leasing business and it has a market cap of R40bn compared with Sasfin's R1,2bn. But after blowouts of overambitious banks such as Citibank and the Royal Bank of Scotland, the Sasfin strategy of staying niched now looks shrewd.
Sasfin's share price is up 43% for the year, while Investec is down 8% and Nedbank, the best performer of the big banks, is up 9%. Only microlender Capitec has done better in the sector. Sasfin shares are not easy to come by, but they would be a low-risk component of any small-cap financial portfolio. |