Costs associated with the rollout of its retail banking operations, hard currency expenses in Zimbabwe, increased impairments and a disappointing performance in Zambia saw ABC Holdings report a 33% decline in attributable profit to P58.4m in the year to December 2009 (FY08: P87.9m).

EPS declined to 40.4 thebe from 60.2 last year. Net interest income was almost static at P178.4m (FY08: P187.4m), but non-interest income rose by 23% to P265m (FY08: P216.1m) as a result of the sale of assets in Zimbabwe.

Expenses rose 54% to P365.7m (FY08: P236.9m) and were largely attributable to the increase in the cost of operations in Zimbabwe. Consequently, the cost to income ratio rose to 82% from 59%.

In 2008, BancABC Zimbabwe expenses were effectively nothing compared with P62m in FY09. The retail banking rollout also cost P30m in 2009 with IT accounting for P10m of the total.

Three branches have been opened in Harare and Dar es Salaam and ten would be opened by half year. Plans are underway to roll out seven branches in Mozambique during 2010, Botswana would follow in Q2 and Zambia in Q3.

Visa accreditation had been acquired in Botswana, Mozambique and Tanzania. The group expects the retail banking operations to be cashflow positive and profitable in the next 18-24 months.

Zambia had a "disastrous year" with the banking operations recording a further loss of P27m in the second half of the year. About 50% on impairments emanated from BancABC Zambia. The loan book also declined by 45%, non interest income fell 19%, resulting in an overall loss of P34m.

“We are a little bit warmer on ABC Holdings than we have been in the past year especially given its current share price of P1.34 and sitting on a PE ratio of 3.3x (against market average of 13.8x). We however, remain cautious over the high cost to income ratio, the quality of their loan book and the disappointing performance in Zambia. We assign an Accumulate recommendation on the stock,” observes Motswedi Securities.

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