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By Renier de Bruyn, 11 February 2013
Early investors in Capitec have been rewarded handsomely with compounded returns of 62% per year over the past decade. 2012, however, wasn’t a great year for Capitec shareholders - the share underperformed the general market by a wide margin despite reporting strong results in March and September.
A flurry of media speculation over an unsecured credit bubble and a large rights issue put pressure on the share price in the second half of 2012
We believe that Capitec will continue to deliver robust earnings growth over the next few years.
A strong balance sheet enables them to continue loan growth, and cost-conscious consumers are increasingly attracted to their low banking fees and high deposit rates. There is also potential to expand their product offering, with the launch of a credit card expected soon.
Concerns over the rapid growth of unsecured lending and high level of consumer indebtedness in South Africa are well documented. However, Capitec is expected to benefit from consolidation in the industry as smaller lenders struggle to compete with the larger and longer loan terms offered by the bigger players. Capitec’s move to allow clients to save on loan fees by allowing multiple loans on a single facility will negatively impact fee income, but will help attract and retain customers in the future.
The share is trading on a price-earnings multiple of 15 times, which we find attractive, given earnings growth expectations of 20%-30% over the next year.