While Capitec introduced strong outcomes for the six months to August 2022, the ever-critical ‘market’ was not happy with a mere 17% improve in headline earnings to R4.7 billion and administration’s reasonably cautious remarks about its prospects.
The share topped the checklist of the greatest losers on the JSE for many of the day on Thursday, with a lack of practically 9%.
The share really adjusted to the chance of decrease progress going ahead as quickly as Capitec printed a buying and selling assertion on 8 September to warn the market that headline earnings per share would improve by 15% to 18% in contrast with the first half of the earlier monetary yr.
This despatched the share worth tumbling by 24% from R2 140 to R1 630 inside days. It has since recovered a bit, however Thursday’s 9% drop worn out most of the good points.
Jan Meintjes, portfolio supervisor at Denker Capital, says Capitec posted good outcomes in opposition to the background of a tough working atmosphere.
“Fundamentals are still good and the financial institution continues to develop and appeal to new shoppers.
“However, there are two concerns. The growth rate is declining and earnings growth of 17% is way lower than what investors are used to from Capitec,” he says.
“Secondly, investors seem to focus on management’s cautious tone when discussing the outlook for the future.”
Premium ranking
Investors have rated Capitec extremely because it listed on the JSE in 2002 as the new financial institution promised – and delivered – sturdy progress with a daring new technique to deliver easy, low cost and environment friendly banking to the plenty.
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Before the current fall in the share worth, the price-earnings (PE) ratio was still very excessive at practically 33 instances. This compares with these of different industrial banks of between seven and 10 instances.
Even after the current decline, Capitec is still on a PE of 20.8 instances (based mostly on the new earnings figures).
Its price-to-book ratio can also be method above that of conventional SA banks, but it surely has been even increased.
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Meintjes says it may be anticipated that it turns into harder for Capitec to proceed rising at the similar phenomenal charge of the previous.
“It is impossible to maintain the growth rate on a larger and ever-increasing base.”
“Capitec’s client base, its deposits and advances are all still growing, but the rate of growth is slowing,” says Meintjes.
Growth in perspective
Capitec still offered sturdy progress figures. The monetary statements present that whole retail mortgage and disbursements grew 35% to R26.5 billion throughout the six months to finish August, in contrast with R19.7 billion in the similar interval final yr.
This resulted in the retail gross loans and advances ebook rising by 18% to R77.9 billion. Retail credit score impairments elevated by 44% to R2.9 billion (R2 billion at the finish of August 2021).
Management stated the improve in provisions is prudent on account of the improve in advances, modifications in the composition of the mortgage ebook, and an unsure macroeconomic atmosphere.
Transaction earnings
Meintjes notes that shareholders may additionally have been disillusioned in decrease progress in web transaction earnings. The earnings assertion reveals that earnings from transaction charges elevated by solely 8% in contrast with a yr in the past.
Capitec’s transaction earnings is decrease than that of different banks in contrast with the whole earnings. Capitec earned web transaction earnings of R5.6 billion in contrast with its web lending, insurance coverage and funding earnings of near R8.3 billion, whereas current outcomes from different banks as soon as once more present that banks earn about half their earnings from charges on transactions.
Not that it might do a lot about it. Capitec constructed its fortunes on providing – if not promising – low transaction charges, whereas the banking sector’s transfer in the direction of digitalisation will proceed to place stress on charges. Digitalisation makes banking cheaper for shoppers, however the reverse aspect of the coin is that it reduces any financial institution’s earnings from transactions.
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“Capitec needs to stay competitive. Competition in the bank sector is very healthy,” says Meintjes.
Opportunities
Nevertheless, Capitec CEO Gerrie Fourie maintains that alternatives abound.
“The yr has not been a straightforward one for our nation, and the South African client took appreciable pressure on this interval on account of inflationary stress, increased rates of interest and record-high gas costs.
“Over the final 5 monetary years, we have now seen constant progress regardless of this, demonstrating the underlying resilience of our nation, our enterprise and our shoppers.
“On average, over 165 000 new clients joined the bank every month for the past year. Its active client base increased by 13% to 19 million and digital banking clients that use Capitec’s banking app, internet banking and USSD platform increased by 21% to 10.8 million – now representing 57% of its total active clients,” says Fourie.
The financial institution’s continued growth of latest digital choices and improvements geared toward making banking less complicated led to a 27% improve in the variety of digital transactions, with shoppers doing 791 million digital transactions throughout the final six months.
Still being disruptive …
Capitec additionally introduced that it’ll enlarge its presence in the mobile market, following its success in promoting airtime to its shoppers via its banking channels.
It launched Capitec Connect, a pay as you go cell providing in partnership with Cell C, in September 2022. The promoting level is low, flat pay as you go charges with information and airtime that doesn’t expire.
Read: Capitec goals to disrupt cell market with information that doesn’t expire
“The flat rates mean that the cost per unit for data, voice minutes or SMSs stays the same whether clients purchase a little or a lot,” says Fourie.
It is a pure extension as greater than eight million Capitec shoppers already purchase pre-paid information and airtime on the financial institution’s digital channels.
The new providing is straightforward, providing a flat charge of R45 per gigabyte for information purchases, with no out-of-bundle fees – and shoppers received’t pay transaction charges after they recharge.
Fourie says Capitec takes an thought, runs with it, and as soon as profitable, seems at the subsequent.
“We stick to the core principle of looking at customers’ needs with a simple and efficient solution,” he says, noting that the focus will now transfer to integrating the enterprise financial institution division.
Listen: Capitec CEO Gerrie Fourie on its interim outcomes
