Capitec’s share price slumped the most in more than two years after the bank issued a trading statement which commentators said was below consensus expectations.
Shares of SA’s biggest retail bank by customer numbers fell 9.41% to R1,900, the steepest drop since July 2020 and the lowest closing price since December 2021.
The fall came after a trading update from Capitec in which it said it expects headline earnings per share of between 3,964c and 4,067c for the six months to end-August 2022, an increase of 15%-18% from the previous corresponding period. Capitec said group earnings per share are expected at between 3,963c and 4,064c, an increase of 17%-20% compared with the previous matching period.
“I don’t think the Capitec earnings guidance is bad but clearly the market sees the numbers as disappointing,” said Wayne McCurrie of FNB Wealth and Investments. “That’s not the fault of Capitec, it’s the fault of the market, which was expecting too much.”
Though SA banks have been reporting robust results in the wake of the steadily waning Covid-19 pandemic, the advent of the Russian war in Ukraine in early 2022 has resulted in a global energy crisis that has caused inflation to hit multidecade highs in markets across the world. The resultant rate hikes by central banks from India to the US and SA, which are hoping to temper price growth through tighter monetary policy, have raised the spectre of a global recession at the same time that consumer incomes come under severe pressure from rising prices for everything from fuel to food.
While Capitec has been one of the most extraordinary corporate success stories since it was established in 2001, a significant portion of its more than 18.1-million clients are lower- to middle-income consumers, whose disposable incomes are more at risk from inflationary pressures. At the same time, its historical reliance on unsecured lending means it has a higher loan default rate than FNB, Standard Bank, Absa and Nedbank, though the higher average interest rate it charges on loans compensates to some extent.
“Capitec has become a big bank and it is harder to grow off a bigger base,” said Peter Armitage, CEO of Anchor Capital. “There are no apparent issues here and Capitec’s prospects look excellent, but it is a simple case of not meeting market forecasts.”
Radebe Sipamla, an analyst at Mergence Investment Managers, said the market consensus for Capitec’s first-half results was for headline earnings per share to increase more than 24% compared with the corresponding period a year earlier.
“The guidance range from Capitec indicates a big miss versus what the market was expecting,” Sipamla told Business Day. “This is what has driven the sell-off as Capitec traditionally has high short interest and any negative news flow benefits those with short derivative positions on the stock.”
Sipamla said Capitec’s results are likely to have been negatively affected by the higher-than-expected costs of ramping up its business banking operations, which are being focused on small to medium-sized enterprises (SMEs) after it bought Mercantile Bank in 2019.
“There are also likely higher front-loaded impairment charges that Capitec has put through, given the inflationary pressures on consumers and higher rate hikes potentially negatively impacting loan repayments,” he said.
Nevertheless, Sipamla said, Capitec’s loan book has a strong bias towards government employees and those who work for state-owned enterprises (SOEs), which puts them at less risk of potential retrenchment relative to most private sector workers. Capitec manages its credit risk on a “microscopic level” and the group traditionally performs more strongly in its second half, he added.
Cy Jacobs, co-founder and CEO of 36One Asset Management, said he still believes Capitec’s share price is too high given its earnings guidance, which he said is “on the low side”.
“The rating of Capitec is extraordinarily high anyway, trading at at least five times book when I last looked,” he said. “Capitec had no room to miss, and it did. I still think it’s too expensive.”
Capitec is scheduled to release its interim results on or about September 29.
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