Successful managers turn threats into opportunities

Barclays Africa Group (BAG), a conglomerate that controls Barclays Bank of Kenya (BBK) is turning what appeared last year to be a great threat into an opportunity to create value for shareholders.

This month, Barclays Africa Group will be renamed Absa Group and henceforth trade with Absa as its brand.

The name change is expected to be effective tomorrow (July 11, 2018). The withdrawal of Barclay Plc UK from Africa forced a condition on BAG, and by extension on BBK.

This change in condition required BAG bosses to respond and adopt emergent strategies.

The first advantage of the sale is that the African managers are now defining their own strategies independent of what the chiefs in UK think, and are therefore, better placed to get a fit into the African environment.

The information channels will be shorter and the decisions will be faster, timely and less costly.

It is known that communication between a parent company and its subsidiaries is costly even when both are in the same country.

It gets more expensive when the two entities are in different continents as was the case of BAG. Communication comes across in the form of personal exchanges that include visits, telephone calls, teleconferencing and periodic planning and control reports.

Parent companies

In addition, expenses are incurred in nurturing the understanding between the subsidiary and parent companies situated in different countries.

This is an extremely costly political process. In the case of BAG, it is such cost savings that translate into high value to shareholders. It is possible that in the past, it was imaginable that even when managers based in Africa made informed strategic choices, such choices were rejected by London.

This will not be the case anymore. There were actions that a Kenyan local bank would take, but BBBK would not because London would not support it

This has now changed, edging up BBK’s competitive advantage.

This should enable BBK to introduce new products and position in new markets; for example, introducing a product similar to M-Pesa.

BBK bosses must be aware that new customers come from non-consumption, not competitors; that is, they are better placed to introduce new products.

The decision to divest or invest will be nearer to the market. This is what the chair of Barclays Africa Group, Wendy Lucas-Bull means by asserting that “we will in the future have a brand that is reflective of our own African identity – this is an enormous opportunity as we create a banking group that makes Africa proud”.

BAG chair’s assertion is that the separation creates a great independent African Bank with global reach . “This is the start on a brand journey that will galvanise our operations across Africa behind a single name.’’

BBK will continue to trade as Barclays even after the group name changes because changing a name has legal implications.

Looking at how BBK share price has behaved in the recent past, it is obvious that investors appear not worried about the pending name change and we would have seen a substantial change in BBK share price.

When this news about change became public, the BBK shares were trading at around Sh8 per share. This improved to as high as Sh13.50 per share.

Return on investment

Over the past 52 weeks, the lowest share price was Sh8.85 while the highest was Sh13.50.

Those who bought this share at Sh8.85 at one point could sell it at Sh13.35, making a profit of Sh4.65 per share or a return on investment of 34.44 per cent.

However, the return is higher, almost 42 per cent, if we include interim and final dividends that have been Sh1 per share over the past three years.

Barclays has the highest dividend yield in the banking sector at Nairobi Securities Exchange.  Diamond Trust’s yield is 1.31 per cent while National Bank is a zero per cent dividend yield on its shares.

Stanchart at 8.5 per   cent is equally competitive.

BAG received 12.6 billion rand from Barclays Plc to invest in rebranding, technology and other separation-related projects.

It it is expected that this will neutralise the negative cash flow resulting from the separation.

It appears Absa is set to change its use of technology to serve customers and be largely a stakeholder and not narrowly shareholder driven company.

Absa CEO Maria Ramos says: “We are building a thriving organisation, centred on diversity of and inclusion with growth firmly as our ambition.”

The three enablers proposed by the CEO - building a scalable, digitally based business; shape society; acquiring and selling assets are challenges but the best bet is to up the value of their firm.

-The writer teaches at the University of Nairobi