Capitec has done what was thought impossible when it listed on the JSE in the early 2000s, dethroning FirstRand as Africa’s most valuable banking group.
The Stellenbosch-based lender, already SA’s largest bank by customer numbers, on Tuesday reached a market capitalisation of R424bn, R4bn higher than that of FirstRand.
Its share price of more than R3,600 is a far cry from the R2.60 it was quoted at in March 2003.
In essence, Capitec is now worth more than Nedbank, Absa and Investec’s SA business combined.
In SA banking terms Capitec is still a relative “start-up”, being a mere 25 years old versus peers with a legacy spanning over 150 years.
Its share price has rallied more than 300% over the past five years, while customer numbers stand at more than 24-million.
This as investors buy into Capitec’s growth story, with the lender continuously launching new products to disrupt the market across the board.
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.
The lender’s exponential to become SA’s largest bank by market capitalisation has raised some eyebrows.
Chris Steward, sector head of financials at asset manager Ninety One, said consensus among most investors is that Capitec’s share price is too expensive.
However, Steward put Capitec’s share price growth in context.
“SA banks typically trade at a P/E of about six to 10 times and dividend yield of 5% to 7%. Capitec trades at PE of more than 20x P/E and a dividend yield of a little over 2%. The reality, however, is that the bank has always traded at a premium valuation to its peers,” 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,” he said.
“While Capitec has already achieved many years of high rates of growth in earnings, its share of the economic profit pools for which it competes remains small. Its large retail banking customer base remains underpenetrated, with large opportunities for cross-sell and up-sell.”
Led by new CEO Graham Lee, Capitec has over the years 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.
From having about 250 branches and few ATMs in 2005, Capitec has grown to nearly 900 branches, with the highest number of ATMs across SA at almost 9,000.
The group has seen a surge in headline earnings over the past decade, with growth from R2.5bn in the 2015 financial year to R13.7bn in the year to end-February.
The lender has 51% market share of SA’s youth population, with 11.1-million of its clients aged 16-35.
Steward said Capitec continues to redefine what constitutes the available profit pools within retail banking with its recent initiatives in value-added services vouchers, payment portals and its MVNO as examples of this.
“Its market share of the insurance profit pools remains small, and it has hardly scratched the surface in business banking,” he said.
“Common wisdom is that its international foray will not be able to gain traction in the vastly competitive global market for financial services (and there is little/no value accorded to it in Capitec’s current valuation), but 25 years ago, common wisdom was that Capitec stood no chance against a deeply entrenched oligopoly of the SA ‘Big Four’.”
In 2029 the bank made a foray into the competitive business banking arena when it bought Mercantile Bank from Portuguese state-owned banking group Caixa Geral de Depósitos in a deal worth R3.5bn.
Capitec last year increased its shareholding in international online consumer lending group Avafin to 97.69% from 40.66%.
Avafin provides online consumer loan products in Poland, Latvia, Spain, the Czech Republic and Mexico.
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