ABSA (ABG SJ) Buy: Explaining the ROE miss

Research evidence excerpt

ABSA (ABG SJ) Buy: Explaining the ROE miss

s lower than the average it

52-WEEK PRICE (ZAR)used when calculating its guidance. We think Absa underestimated the impact. It

provided numbers that enable us to quantify the impact of this miscalculation, which 290.00

we estimate only explains 30bp of the lowering in its 2026 ROE guidance, and not 225.00

the full 100bp (from c16% to c15%).

160.00

We thus conclude there is more to the lower ROE guidance than just this issue. 07/25 01/26 07/26

Target price: 263.00

During its investor call Absa also said it had a very strong trading performance in High: 272.03 Low: 173.69 Current: 223.00

1Q26 and that this was not sustained in 2Q26. Trading revenue is volatile and Source: LSEG IBES, HSBC estimates

unpredictable by nature, and we do not think ROE guidance can be issued on the

Henry Hall*

assumption it will grow strongly. We assign lower value to trading revenue than to Banks Analyst

more annuity revenue. HSBC Bank Middle East Limited, DIFC

henry.hall@hsbc.com

Caution: We continue to see Absa facing large obstacles to lifting its ROE and +27 11 880 1855

expect it will take a long time. Its ROE is structurally impeded by its low ratio of Harish Paliwal*

Associate

capital light revenue to total revenue. Bangalore

Conclusion: We cut our earnings forecasts post Absa’s trading update. We now

forecast 6.4% growth in HEPS in 2026 (from 8.5% previously). We also cut our * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is

not registered/ qualified pursuant to FINRA regulations

forecasts for 2027 and 2028. Because we were not forecasting Absa to achieve its

2026 ROE target or its medium-term ROE target of 16-19%, and were valuing the