Capitec’s acquisition of higher-income retail customers and business clients offers a positive underpin for improved credit quality, with the lender set to pay generous dividends going forward, according to analysis by FNB Wealth and Investment.
The Stellenbosch-based lender has acquired 24-million clients, making it the country’s largest bank by customer numbers.
The lender, which is about to undergo a leadership transition, has successfully shaken off its image as a lender for lower-income depositors, with the company increasingly attracting clients earning R50,000 a month and higher.
This category saw a 26% increase in the year ended February, where the group posted record profit of R13.7bn.
In a research note, Sithembile Bopela from FNB Wealth and Investment said it sees Capitec delivering above-sector dividend growth going forward, complemented by high top-line growth, strong profitability and a solid capital position.
“Consensus remains bullish on the stock, with 64% of analysts covering the stock maintaining a ‘buy’ rating and the target price denoting 12% upside potential from current levels. Earnings growth in the mid-to-high-double digits is currently forecast over the medium term off revenue growth in the low-to-mid-double digits,” Bopela said.
“Due to its higher growth prospects, Capitec (7.8 times PB
[price-to-book]) continues to trade at a significant premium to its peers (2.3 times PB average), and the premium has increased as the bank has continued to execute well on its growth strategy,” she said.
“We believe, however, that a premium to peers and a high PB is justified given the bank’s structurally higher ROE (return on investment) and growth runway — particularly in improving its market share in fully banked clients, business banking and insurance.”
Bopela works as an investment research analyst specialising in stock market analysis at FNB Wealth and Investment.
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%.
SA’s largest asset manager, Ninety One, has also taken a liking to Capitec. The money manager said Capitec was poised to disrupt the competitive business banking sector, arguing that 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 view is shared by Bopela.
“The business bank has increased its market visibility over the last few years. Market share is still low and there is room for growth — particularly in the historically underserved and underpenetrated small, medium and micro enterprises space,” Bopela said.
Nedbank has flagged Capitec’s foray into small and medium enterprises lending as presenting the toughest competition among its rivals.
The bank made a foray into the competitive business banking arena in 2019 when 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.
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