Capitec’s share price gains are better than any bank in emerging markets – so why are people worried?
Banker Capitec said in a trading statement on Wednesday that it expects headline earnings for the six months to August 2017 to rise by up to 18%.
Shares in the group declined nearly 3.5%, or R3.00, to R866.95 on the JSE in mid-day trade as the figure failed to impress analysts.
The company said that it expects headline earnings per share to be between R17.45 and R17.90 per share, representing an increase of between 15% and 18% compared to the R15.17 per share reported in the previous period.
Earnings per share will be between R17.41 and R17.87 per share, representing an increase of between 15% and 18% compared to the R15.14 per share reported in the previous period ended August 2016, Capitec said.
The anticipated increase in earnings will come as no surprise to analysts or shareholders, with the lender’s stock showing gains in all but one of the years since it began trading in 2002.
Capitec’s shares have since climbed more than 50,000% – the most among banks across emerging markets during that same period, and adding a further 25% in 2017 so far.
Onwards and upwards
In an interview last week, Capitec chief executive Gerrie Fourie said that the bank is currently attracting 100,000 to 150,000 new customers each month.
“Most of them we’ve taken from other banks,” said Fourie. “The economy is helping us – people have started questioning why they have to pay banking costs,” he said.
The bank’s continued client acquisition saw it pass nine million retail customers in June, surpassing Absa’s 8.6 million and rapidly approaching Standard Bank’s 12 million.
With an estimated market value of R103 billion, it is also quickly closing in on fourth-biggest lender, Nedbank, which is valued at R110 billion.
Potential issues
Despite the popularity surrounding the bank, Capitec’s low-cost model and growing market share could prove to be a potential risk for the bank, warn industry experts.
Unlike its rivals, Capitec offers only unsecured loans to low-income earners and cannot count on other lending areas to counter any losses.
And according to Ashburton Investments’ Wayne McCurrie, Capitec’s latest results are also lower than analysts’ forecasts for the first time since listing.
With a price-earnings ratio – which measures its current share price relative to its per-share earnings – of 27 times, McCurrie said that this was ‘not good’ moving forward.
Capitec’s meteoric rise has also made its shares expensive.
The bank said it expects to publish its financial results on 27 September 2017.
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