Capitec slumps most in two years

• Share price of SA’s biggest retail bank by customer numbers falls as much as 9.72% as it ‘fails to surprise’

Capitec’s share price tumbled the most in more than two years after the market took a dim view of its interim dividend and the CEO flagged concern about global and domestic economic uncertainty. SA’s biggest retail lender by customer numbers said that headline earnings rose 17% from the previous half-year to R4.67bn.

Capitec’s share price tumbled the most in more than two years after the market took a dim view of its interim dividend and the CEO flagged concern about global and domestic economic uncertainty.

SA’s biggest retail lender by customer numbers said on Thursday that headline earnings, a profit measure that strips out one-off items, rose 17% from the previous half-year to R4.67bn in the six months to end-August 2022.

While Capitec still managed to increase its interim dividend 16.7% to 1,400c, almost doubling the prepandemic interim dividend of 755c declared in August 2019, the bank’s share price slumped. Capitec’s stock fell as much as 9.72% to R1,625, the steepest intraday drop since July 2020, before paring losses to trade 9.1% down at R1,636.13 at 2.12pm local time.

SOFTER

“The dividend was softer than the market was expecting,” said Radebe Sipamla, an analyst at Mergence Investment Managers. “I think the miss on the dividend is a big driver as it’s 40% less than the market was expecting. Operationally, there aren’t any cracks I can see.”

Thursday’s price drop took the year-to-date fall in Capitec’s share price to 19%. By contrast, the JSE banks index is down 0.6% over the same time frame.

“Market talk is of some disappointment with the dividend,” said Peter Armitage, CEO of Anchor Capital. The extent of the share price drop was a surprise.

“Capitec is a premium share, and at a more than 20 times price:earnings multiple it needs to surprise the market to sustain that rating in these difficult market conditions.

“The market’s saying it’s not quite enough to justify the rating which is more than double that of the other banks.”

Capitec said it added 165,000 new customers a month in the past six months as digital banking clients that use its app, internet banking and USSD rose 21% to 10.8-million. That means 57% of Capitec’s total active client base of 19-million are now on a digital platform.

Nevertheless, CEO Gerrie Fourie struck a cautious tone in the bank’s presentation to analysts after the publication of its interim results. Fourie flagged global risks from rising inflation and the lingering effect of the Ukraine war, as well as persistent load-shedding and weak business and consumer confidence as key risks to household disposable income.

“I think it’s probably going to be a very uncertain year,” said Fourie. “There’s definitely stress coming through from our clients, and that’s what we need to manage going forward.”

Fourie told Business Day the effects of the Ukraine crisis, which caused global inflation to rise to multidecade highs, and consequent central bank action to tame the price growth, was more onerous than initially expected.

“That’s why you need to be more agile on your credit policies,” he said.

While Capitec’s deposits rose 9% from the previous half-year to R138.9bn, the percentage of financially active clients defined as suffering from “cash stress” rose to 13.1% by end-August 2022, up from 12.2% a year ago.

Gross loans and advances grew 18% from a year ago to R91.94bn.

On a purely retail level, the bank’s stage 1 loans, or those defined as up-to-date, represented 63% of the consumer loan book. Stage 2 loans, those defined as up-to-date but with a significant increase in credit risk as well as those that applied for debt review after six months, constituted 23% of the loan book.

Stage 3 loans, those that are more than two to three months in arrears or where customers have applied for debt review within six months, rose to 14% of Capitec’s retail loan book.

That is up from 13% at endFebruary 2022.

“We need to be conservative in managing our credit going forward,” said Fourie. The bank is now granting virtually no credit to clients earning less than R5,000 a month after tax and other deductions such as medical aid.

PLUS

On the plus side, Capitec managed to grow its exposure to higher-income clients during the half year, with retail credit granted to new clients earning more than R50,000 a month after tax and other deductions rising 49%. However, the vast bulk of loans was still with customers earning between R15,000 and R50,000 a month.

On the insurance side, Capitec’s net credit life insurance income rose 60% to R912m, while funeral plan income was up 72% at R629m. Mercantile Bank, which Capitec purchased in 2019 to move into business banking, increased headline earnings 60% to R201m for the half year, with Fourie saying it was on track to be rebranded as Capitec Business by March 2023.

“There are some very positive trends coming through, especially on funeral income and on the business bank,” said Sipamla.

THE MISS IS A BIG DRIVER AS IT’S 40% LESS THAN THE MARKET EXPECTED. OPERATIONALLY, THERE AREN’T ANY CRACKS I CAN SEE