SA’s largest asset manager, Ninety One, says Capitec’s “remarkable” growth will continue to deliver high returns for investors, shrugging off the lender’s expensive share price.
The money manager says Capitec is its preferred banking stock within its SA equity and multi-asset strategies.
Chris Steward, sector head: financials, SA equity & multi-asset at Ninety One, said Capitec’s management has been adept in identifying areas in the industry that are ripe for disruption and executing on strategy.
“When looking at the SA retail and business banking revenue pool over the past 14 years, Capitec’s market share increased from about 3% to about 14%. Given its low-cost, purpose-built business model, its profit share has grown faster, from about 4% to almost 20%,” Steward said in a note.
“Despite growing its market share by almost five times, Capitec remains the smallest bank in the country by market share of retail and business banking revenue, demonstrating the vast opportunity for the bank to continue growing its revenue base.
“From having about 250 branches and very few ATMs in 2005, Capitec has grown to nearly 900 branches, with the highest number of ATMs across SA, at almost 9,000. This expanded presence comes while most other banks are desperately trying to reduce costs, opting instead to lower the number of physical branches and ATMs that they have around the country.”
At R3,136, Capitec’s share price is one of the most expensive on the JSE — certainly among the listed banking groups.
The Stellenbosch-based bank is valued at R364bn on the local bourse, having made inroads on the country’s most valuable lender, FirstRand, valued at R433bn.
The country’s largest bank by assets, Standard Bank, is valued at R378bn. Steward said Capitec’s hefty share should not scare off investors, arguing that the company’s proven track record and longterm ambitions will more than compensate investors for higher valuations.
“The consensus among most investors is that Capitec’s share price is too expensive. SA banks typically trade at a [price-to-earnings ratio] of about six to 10 times and dividend yield of 5 to 7%. Capitec, meanwhile, trades at more than a 20 times P/E and a dividend yield of only 2%. The reality, however, is that the bank has always traded at a high valuation,” Steward said.
“As with all growth companies, it is essential not to look at valuations in isolation but rather in the context of the company’s sustainable future growth trajectory. We believe Capitec has a compelling growth story and has consistently delivered exceptional value for shareholders despite always screening as relatively expensive.”
Capitec’s growth over the past two decades has seen it attract blue-chip investors, with US financial services major JPMorgan one of the lender’s largest shareholders.
Led by Gerrie Fourie, Capitec has evolved and broadened its revenue streams by increasing its products and has balanced its mix of lending and transactional income by also targeting higher-income earners.
The bank, which has 23-million clients, has also made a foray into the competitive business banking arena. In 2019 it bought Mercantile Bank from Portuguese state-owned banking group Caixa Geral de Depósitos in a deal worth R3.5bn, shrugging off competition from Nedbank and a consortium of the Public Investment Corporation and Bayport Financial Services.
It has since rebranded Mercantile to Capitec Business and is looking at expanding its international business.
In March, the SA Reserve Bank approved a transaction in which Capitec will increase its shareholding in international online consumer lending group Avafin to 97.69% from 40.66% at a purchase price of €26.3m. Avafin provides online consumer loan products in Poland, Latvia, Spain, the Czech Republic and Mexico.
Steward said Capitec was poised to disrupt the competitive business banking sector.
“By offering business banking at a lower cost, with a special focus on point-of-sale, Capitec is acquiring business clients while gaining a better understanding of their transactional activities and cash flows.
“This will allow the bank to unlock an alternative approach to business financing, effectively lending funds against the cash flows of a business rather than its assets.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.