Capitec's year got off to a rough start with the negative publicity generated by a Viceroy Research report knocking its share price to an all-time opening low.
The bank's share price has fallen by 15% since the beginning of the year, its poorest performance for the period between January and March 22 since being listed in 2002.
In contrast, the big four banks have seen their stocks grow since the beginning of the year, with FirstRand up 4%, Nedbank 16%, Barclays Africa 10% and Standard Bank 16%.
After at least a decade of stellar share-price growth, outstripping that of US tech giant Apple, it appears as though Viceroy has finally pricked Capitec's bubble.
In its report, the short-seller, which also produced a scathing report on Steinhoff, accused Capitec of unsustainable and unscrupulous lending, recommending that it be placed under curatorship by the Reserve Bank. The Reserve Bank has assured depositors that the bank is sound.
Despite its findings being rejected by Capitec and other industry experts, Viceroy has stood by its claims. For this it has been criticised, with Capitec CEO Gerrie Fourie taking a stab at the unregulated short-seller in parliament last week.
Jan Meintjes, a portfolio manager at Denker Capital, said: "I do not think that Viceroy has any credibility. They do not publish their 'research' in the interest of transparency or the greater good of the investment community.
"At over R1 000 a share, a lot of the growth for Capitec is priced in, and the share becomes more vulnerable to bad news. Viceroy knows this."
In a fresh attack last month, Viceroy lashed out at Capitec for making changes to its policy on the maximum number of loans a client may hold, which the bank revised after the release of the short-seller's research.
"Capitec should disclose to its investors and borrowers why it has amended this policy while recently stating they have adequate risk policies in place," it said in an open letter to the bank.
While only time will tell whether Viceroy's report was merely opportunistic or a taste of Capitec's future fortunes, the present facts suggest that Capitec will maintain solid growth.
When Fourie presents the bank's results on Tuesday, he will likely report double-digit earnings growth - far stronger than that of the four large banks - and a steady increase in Capitec's transactional client base. Muted loan growth is expected, however, in line with that of the big four.
But with competition intensifying in the banking sector with new entrants coming onto the scene and Absa's renewed focus on its home market potentially packing a punch, Capitec's growth could taper off.
Bank Zero and TymeDigital will pitch their offerings at Capitec's lower-income client base, while Old Mutual this year overtook Capitec when it made its Money Account available at a R4.50 basic monthly fee, compared with Capitec's transactional account at R5.80.
But Capitec's efforts to diversify its business would help insulate it from competitive shocks, said Neelash Hansjee, an Old Mutual Equities banking analyst.
Fourie has hinted that the bank will release new products in the coming year, but has remained mum on speculation that Capitec will enter the home loans market in the short to medium term.
In February, when Viceroy's attack was fresh, Capitec was still signing up between 6 000 and 8 000 new clients daily - in a segment of the market where it has hit other banks hard.
"I think that Capitec will continue to grow faster than the traditional banks as they gain market share. I do not see the traditional banks gaining share back from Capitec soon," said Meintjes.
As the economy strengthens under President Cyril Ramaphosa, headline earnings in the banking sector are touted to increase at about five times the rate of GDP growth, according to a report by EY released this month. With this expected upswing, all banks stand to benefit.
"I do think that the gap in growth rates will narrow between Capitec and the traditional banks in the upswing simply because Capitec has a higher base to grow from. The law of large numbers makes it more difficult to grow at the same pace," Meintjes said.
Despite a rough start to the year, Viceroy has provided Capitec with some positive outcomes. The bank's resilience and communications prowess were on display in the weeks following the report's release.
"Capitec has possibly learnt that it could improve disclosure in certain areas, and market participants have been asking more pointed questions. This is a good development," said Meintjes.
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