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The Finance Ghost: Banks vs bricks — which is the smarter bet in a tough market?

The Finance Ghost: Banks vs bricks — which is the smarter bet in a tough market?
The Finance Ghost
By The Finance Ghost
16 Mar 2025
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Despite strong earnings from banks and resilience in the property sector, the Financial Index on the JSE has lagged behind the broader market. With banks delivering solid returns and real estate investment trusts (REITs) offering high yields, investors face a key question: Which sector presents the better opportunity in a challenging economic climate? 

The Financial 15 index on the JSE is down roughly 3% year-to-date. That’s a disappointing outcome, of course, especially compared with the JSE All Share Index up 3.5% over the same period. This is despite some strong numbers that have come out of insurance groups and the banks, along with decent results in the property sector.

This tells you that sentiment towards South Africa has taken a serious knock, as the financial sector greases the wheels of economic growth. These are businesses that rely on economic activity, something that is becoming thin on the ground as the post-GNU realities set in.

Of course, when you see prices move in the opposite direction to earnings, it eventually creates an opportunity. This means that the sector is worth keeping an eye on, with some important numbers coming out in the past week. The trick to taking advantage of a weak market is being armed with the knowledge of what you want to buy and at what price.

We begin with the banks.

Bank valuations look interesting


Absa released its results for the year ended December 2024. HEPS was up by 10% and the dividend grew 7%, so that’s a decent result overall. As you would expect, performance was mixed once you get into the segmental analysis, with a particularly strong result from the Corporate and Investment Banking (CIB) side of the group and some weaker numbers in other areas.

Return on equity was 14.8%, which means that Absa is delivering adequate returns to shareholders, but nothing spectacular. Then again, on a PE multiple of 6.8x, the market isn’t exactly pricing in high expectations. On a dividend yield of 8%, Absa feels interesting at these levels as the market seems to be pricing in more risks than we are perhaps seeing on the ground, especially as the broader story in recent banking earnings from Absa’s peers has been one of an improving credit environment.

At Standard Bank, the Africa story is more important than it is at the other banks. This is because the African regions contributed 41% to group headline earnings for the year ended December 2024. Currency volatility in those regions has a substantial impact, with the good news being that Standard Bank expects better macroeconomic conditions on the continent in 2025. Of course, not all macroeconomic forecasts work out.

If things do improve though, Standard Bank investors will be smiling. The Africa regions grew earnings 22% in local currency, so the opportunity is clear. It’s just a pity when the currencies depreciate rapidly against the rand, as Standard Bank’s reported HEPS was up just 4%. Growth might not have been inspiring, but group return on equity came in at 18.5%, which is way ahead of Absa. The African story comes through strongly on that metric as well, with return on equity in Africa of over 28%.

Standard Bank is trading on a PE of 8.6x and a dividend yield of 6.5%. The premium valuation compared to Absa stems from the higher return on equity, as Standard Bank is doing a much better job of achieving shareholder returns at the moment.

The market definitely preferred the Standard Bank numbers to the Absa numbers, with the year-to-date return being 7% for Standard Bank and 2.6% for Absa. For context, Nedbank is down 5%, FirstRand is down 2.8% and Capitec has lost 3.6% this year. Among the largest banking names, Standard Bank is the only one in the green in 2025. The market really took the Africa forecast to heart.

Are the large REITs too expensive at the moment?


In the same week as the bank earnings, we saw property stalwart Growthpoint come out with numbers for the six months to December 2024. Distributable income per share increased by 3.9% and the net asset value per share fell by 2.6%. That’s an uninspiring performance, affected by factors including finance costs, impairments in Australia and the corporate activity related to the disposal of Capital & Regional.

The more interesting insights come from a deeper read into the portfolio, especially when you see numbers like the V&A Waterfront growing net property income by 16.6%. After the impact of debt in the structure, Growthpoint’s share of distributable income from that jewel in the crown of its portfolio only increased by 4.5%. You can expect to see the contribution from Cape Town increase over time in Growthpoint, as it has made it clear that it sees the Western Cape as a growth region. Interestingly, it also highlights Umhlanga Ridge as a little gem.

Although there are green shoots in the portfolio, particularly in terms of the office sector bottoming out, Growthpoint expects distributable income per share to be up by between 1% and 3% for the full year. That’s not exactly doing a job of mitigating the impact of inflation, now is it?

Banks or property: choose your fighter


It’s therefore pretty clear that the large banks are finding it easier to grow their earnings at the moment than the largest and most important property fund in South Africa. It’s also worth remembering that the banks are sitting with security over their underlying assets, whereas the property funds (and other corporate and individual borrowers) are the ones providing that security. You would therefore expect to see a significantly better dividend yield from the REITs vs the banks to compensate you for that risk.

With Growthpoint trading on a dividend yield of just under 9%, you’re getting a pretty similar dividend to what you’ll get from Absa. This is before adjusting for tax, which is very important for investors to remember as REIT dividends are taxed at a higher rate than non-REIT dividends (like from banks). Growthpoint has trailed the performance of the banks over the past 12 months, although it has beaten a number of them in 2025 with a 4% year-to-date performance.

Personally, I think there are better ways to play the property sector than Growthpoint and its portfolio that still includes too much exposure to subpar assets. If you’re going to take systemic exposure to South Africa by buying one of the largest groups in either the banking or property sectors, I would choose banking at the moment. And if you want to see the real power of stock picking in the financial services sector, just take a look at the likes of OUTsurance and its 55% return in the past 12 months. DM

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