Our opinion on the current state of SFN

Sasfin, a banking group with a focus on providing finance solutions for small businesses and high net-worth individuals, has been a part of the Johannesburg Stock Exchange (JSE) since 1987. The bank has made significant investments in digital platforms and acquisitions to enhance its offerings and reach. However, the share has been on a downward trend, which was advised to be monitored for an upside break through its long-term trendline as an indicator for potential investment. The anticipated upward break has been delayed, in part due to the impact of COVID-19, but recent developments suggest signs of recovery.

On 16th October 2023, Sasfin announced a significant strategic decision to divest its capital equipment finance and commercial property finance businesses to African Bank Limited, which triggered a sharp increase in its share price. This move is indicative of Sasfin's strategic repositioning and focus on core operations that offer the greatest potential for growth and profitability.

For the fiscal year ending on 30th June 2023, Sasfin reported a total income increase of 7.31% but a decrease in headline earnings per share (HEPS) by 19.42%. The net asset value (NAV) of the company saw a growth of 4.49% to 5122c per share. The rise in total costs was primarily attributed to increased expenses within its Business and Commercial Banking division, as well as costs associated with investigating financial misconduct by former employees.

More recently, on 27th February 2024, Sasfin disclosed receiving a civil summons from the South African Revenue Services (SARS) for a substantial damages claim amounting to R4.782 billion, plus interest and penalties. This claim is related to income tax, value-added tax (VAT), and penalties allegedly owed by former foreign exchange clients of the bank. Such a development poses a significant challenge for Sasfin, potentially impacting its financial stability and investor confidence.

Given the relatively low volume of shares traded daily, around R55,000 on average, Sasfin's stock is considered fairly thinly traded. This characteristic can lead to higher volatility and may affect the liquidity for investors looking to buy or sell shares.

In light of these developments, potential investors should carefully consider Sasfin's current financial health, the implications of its strategic decisions, and the potential impact of the SARS claim. While the disposal of certain business units may streamline operations and focus on more profitable segments, the legal challenge from SARS introduces uncertainty that needs to be weighed carefully before making investment decisions.