Weekly Roundup

Its earnings season again, as things kick off this Friday with JP Morgan, Citi Bank, Wells Fargo and Blackrock, which is expected to deliver a couple of upsets. On the local front, its all about PSG, with PSG Konsult and the PSG Group’s private equity arm Zeder Investments reporting this week.

Update 17 April 2023

In the week that was, the US showed a deceleration in the Headline CPI, while the core CPI remained stable. Major US banks, JPMorgan Chase, Citigroup, and Wells Fargo exceeded earnings expectations for Q1 despite concerns over the banking sector’s stability following the failures of smaller banks. In addition, we also have a look at PSG Konsult (KST) which released results for the fiscal year ended 28 February 2023. Let’s take a closer look at these developments.

US CPI: March 2023

The US experienced a deceleration in inflation, with March’s rate of 5% being the lowest since May 2021. This marks a significant decrease from February’s rate of 6% and was below market forecasts of 5.2%. We witnessed a slower growth rate in food prices, increasing by 8.5% compared to February’s 9.5%. Energy costs also dropped, with a 6.4% decrease in prices. This decline was largely due to sharp drops in gasoline and fuel oil prices, which fell by 17.4% and 14.2%, respectively. The prices for used cars and trucks also continued to decrease in March, declining by 11.6% compared to February’s 13.6% drop. The rental market in the US, which is under pressure due to the housing shortage, has contributed to this trend. Despite this, rental prices, which make up more than 30% of the CPI basket, continued to climb, reaching 8.2% compared to 8.1% in the previous month. Analysts anticipate that the Fed may raise interest rates by 25 basis points in May.

Citigroup (NYSE: C)

The bank’s positive results can partially be attributed to revenue rising 18% year-on-year, which was driven by higher interest rates. Citigroup also surpassed its anticipated revenue of $19.99 billion, reporting $21.45 billion in revenue. The growth in net interest income was offset somewhat by reduced noninterest revenues, though the bank still saw strength across Services and Fixed Income Markets, as well as substantial average loan growth in US Personal Banking. The bank experienced a decline in Investment Banking and Equity Markets, lower investment product revenues in Global Wealth Management, and impacts from the closure of exit markets and wind-downs. Despite this, earnings per share increased 8% from the previous year to $2.19, primarily due to higher net income and a modest decrease in average diluted shares outstanding. Citigroup’s net income for the quarter was $4.6 billion, representing a 7% increase from the same period last year, due in large part to higher revenue, though this was partially offset by increased expenses and cost of credit. Additionally, the bank’s net interest income rose by 23% to $13.35 billion.

PSG Konsult (JSE: KST)

Recurring headline earnings per share (RHEPS) increased by 5% to 72.9 ZAR cents, primarily driven by the solid performance of PSG Wealth which achieved a recurring headline earnings growth of 11%. The 9% increase in core income during the current year was due to the continued rise in management and other recurring fees, despite a reduction in transactional brokerage due to lower trading activity compared to the prior year. However, PSG Insure had a 4% decrease in recurring headline earnings, as the division’s results were negatively affected by the KZN floods, which was classified as catastrophic event. PSG Asset Management also contributed to the per-share figure, but the division’s headline earnings declined by 10% due to lower performance fees, although management fees increased by 11%. The total dividend was 36 ZAR cents per share, up 13% from the previous year. Although negative operating leverage is still a concern, cost growth moderated to 9.9% in the second half of the year, which could potentially reverse the fortunes of the company in the next few reporting periods.

The per-share figure was also supported by share buybacks during the period. The total dividend came in at 36 ZAR cents per share, up 13% year-on-year.

Sources: Bloomberg, The Wall Street Journal, CNBC, Financial Times

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