Avior Financials | SA banks IFRS 9 comparison | PSG NAV and valuation

In this week's Avior Financials note:

Our analysis of SA banks' SA retail credit impairment disclosures under IFRS 9 showed mix trends (in line with credit impairment charges by product). In retail mortgages, we note that SBK's provisioning appears to be the most conservative while FSR has the highest quality book. Despite an increase in VAF credit impairment charges in 2018, SA banks' Stage 1 and 2 provisions imply that credit impairment charges are still below the through-the-cycle level. In unsecured lending, we note that SBK's credit loss ratio in SA of 3.7% in FY '18 was low compared peers and SBK's provisioning at year-end. SBK's plan to increase new business levels to c.R1.5bn per month will place pressure on credit impairment charges in FY '19f (due to new business strain from higher Stage 1 provisions).

PSG Group's share price reached an all-time high this week due to a rally in Capitec. The discount to NAV increased to c.18%. At spot prices, Capitec forms 67% of PSG's NAV. We do not see scope for PSG's discount to narrow given the concentration risk with Capitec.

Our top picks in the sector are Discovery, Peregrine, Old Mutual and Investec.