The Finance Ghost: The lowdown on Libstar and Standard Bank – why details matter

Company announcements can be complicated things to navigate. Management teams don’t always spoon-feed the market, especially when it comes to information that doesn’t paint the company in the best light. It regularly requires a bit of digging to get to those nuggets of information, along with an understanding of the nuances of the underlying sector and the context of other recent announcements by the company.

Libstar and Standard Bank are two good examples of why it’s important to read as much as possible in the market and how it can be dangerous to take the numbers at face value.

Libstar – it’s amazing what an extra week can do

On Thursday, Libstar’s share price closed 16.6% higher based on the release of a sales update. The market celebrated revenue growth of 10.1%, not least of all because Libstar has been a multiyear disappointment of note (the share price has lost over half its value in the past five years). But if you read closer, you’ll find that the revenue growth isn’t nearly as impressive as it looks.

For reasons that I really can’t explain, Libstar released a sales update that suffers from poor comparability to the prior period. They chose to release numbers for the 21-week period ended 30 May 2025 and compare them to the 20-week period ended 24 May 2024. Both periods end on a Friday, so that’s fair enough, but why on earth didn’t they just do the 20 weeks to 23 May 2025?

Perhaps this is by design, as an extra week of trading does wonders for growth in sales volumes. Those who follow the retail sector are familiar with the nuances of 53-week and 52-week periods, with much effort put into analysing numbers that are directly comparable i.e. have the same number of trading weeks. On a much shorter period like 20 weeks, suddenly having an extra week makes a 5% difference to the numbers (all else held equal). This is a very flattering view indeed.

There’s a further problematic nuance here: the 21st week in the latest period is a payday week. High-income households that don’t live from one salary to the next may be surprised to learn that many South Africans wait until payday week to do larger shopping trips or to buy more discretionary items for their families. Even in grocery categories, payday week makes a difference. 

It’s therefore highly likely that Libstar’s volume growth of 5.2% is entirely due to the additional week of trading. In fact, it’s quite possible that growth in volumes was negative, as the extra week would add 5% to volumes if we just assumed steady trading over the period – and as mentioned, the payday effect is anything but steady. This means that Libstar’s comparable growth was probably more in line with (or slightly below) the price/mix change of 4.9%, which means that they are simply growing in line with inflation.

I wouldn’t be surprised at all if Thursday’s rally washes away as reality sets in, particularly as the latest numbers don’t include the impact of the foot-and-mouth disease outbreak in late May that is expected to have an effect on sales until July.

Standard Bank – strong growth, but not for the best reasons

The past few months have been characterised by an unusually high level of director dealings at Standard Bank, with one-way traffic in terms of executives selling shares. Not only does this include the CEO, but also a number of other high-ranking people at the company. It’s always a good idea to take director dealings into account in your investment thesis, although the unusual challenge here is that the selling has come at a time when Standard Bank has been achieving solid growth.

In both the first quarter and the five months to May, Standard Bank achieved around 10% growth in headline earnings (measured in rands). The group has extensive business interests in the rest of Africa, so it’s relevant to mention that constant currency growth has been in the mid-teens. With return on equity in the target range of 17% to 20%, it looks as though investors have nothing to worry about.

But again, with the selling by directors in the back of our minds, we need to consider what the underlying concern might be. We need to wait for the release of interim results to have all the details of course, but for now we can already see that the traditional banking business is under pressure. In an environment where rates are only coming down slowly, Standard Bank is facing uninspiring demand for credit. But any drop in rates does have an impact on net interest margin though, with the best way to understand this being that Standard Bank is facing a pricing squeeze and only modest growth in volumes (loans). This is why net interest income has been flat for the period.

If this is true, then where has the growth come from to drive double-digit increases in headline earnings? There are two sources. The first is an improvement in the credit loss ratio, even though it still remains above the targeted range of 70 to 100 basis points. The second (and the more important one in this period) is excellent mid-teens growth in non-interest revenue, which includes line items like fees and trading commissions. Market volatility is a major driver of non-interest revenue and it does wonders for return on equity.

Here’s one more detail to keep in mind: Standard Bank has indicated that the interim period is unlikely to enjoy headline earnings growth at the same levels as we saw in the five months to May 2025, as June 2024 was a particularly strong month and hence there’s a demanding base.

Standard Bank’s share price is only up 2% year-to-date. When the company insiders are finding better uses for their money, then investors should think carefully about doing the same. DM