Our opinion on the current state of CAPITEC(CPI)Capitec Bank (CPI), now the country's largest bank by customer numbers (21,1m), was launched by PSG and has been a major disrupter in the South African banking system. It has steadily taken retail market share from the other banks by offering a cheaper and easier solution, especially for the previously unbanked section of the population. The company is adding about 90 000 funeral policies every month. In our view, this share is a "must-have" for any private investor's portfolio. Its parent company, PSG, has now unbundled its holding of Capitec shares to release shareholder value.
Capitec's client base is mostly in the lower living standards measure (LSM) levels, so it has just less than 10% of the retail deposit base despite its enormous number of clients. Capitec's annual average growth in HEPS for the past 19 years since 2003 is 32,2% per annum – an incredible record. On 19th January 2022, the company announced that it intends to conduct a BBBEE transaction by giving about R1bn worth of its shares to staff who have been working at the company since the beginning of 2019 or earlier. The issue is expected to dilute the share and caused the share price to fall.
In its results for the year to 29th February 2024, the company reported headline earnings per share (HEPS) up 16% and return on equity (ROE) of 26%. The bank increased its number of active clients by 10% to 22,2 million. The company said, "Non-interest income made a significant contribution to the 16% growth in headline earnings for the 2024 financial year and increased to 72% of income from operations after credit impairments."
In a trading statement for the six months to 31st August 2024, the company estimated that HEPS would increase by between 35% and 37%. The company said, "The lower CLRs have persisted into the 2025 financial year and the net transaction and commission income, including value-added services, has continued to contribute to strong growth in non-lending income."
Technically, the share has been rising since June 2023. It is now on a multiple of 32,21 – which is still well above the JSE Overall Index (14,88) and other leading banks. Despite this, in our view, Capitec remains excellent value. This is a share you should accumulate on weakness.
