Capitec’s plan to continue 30-year rally

Capitec, South Africa’s best-performing share since the advent of democracy, wants to use its retail banking strategy to grow its business banking and insurance units.  

The Stellenbosch, South Africa-based lender, which built the country’s biggest bank by customer numbers by focusing on low-income depositors and unsecured lending in one of the world’s most unequal nations, will seek to woo small businesses in the informal sector to expand further, CEO Gerrie Fourie said.

“If I look at South Africa, we’re not going to get unemployment down and get the economy growing via the government and private sector,” he said at a briefing on Tuesday. “It’s the entrepreneurs that we need to support.”

The stock jumped as much as 9%, the most in seven months, after reporting record profit that beat analysts’ estimates. Capitec’s shares have surged 1,277-fold since the company listed on 18 February 2002, outpacing a six-fold advance in the benchmark FTSE/JSE Africa All Share Index.

“I’m excited in what is lying ahead in the business banking space,” Fourie said. Capitec is still building the unit, and “we are busy just making certain we can handle the capacity”, he said.

Capitec was founded by Michiel le Roux in 1997, three years after Nelson Mandela led the African National Congress to victory in the nation’s first election after the end of apartheid.

The lender was spun off from financial services company PSG Group in March 2001 and listed on the Johannesburg Stock Exchange in February 2002. 

Over the past two decades, Capitec has lured 22 million customers and become the third-largest lender by market value, even though with R208 billion of assets it ranks as the smallest of the major lenders. Standard Bank has R3 trillion of assets.

“There’s still enough growth potential over the next 10 years,” Harry Botha, an analyst with Anchor Capital, said before the earnings announcement. “The bank still has meaningful growth potential through cross-sell and up-sell of its existing product.”

Still, the highest borrowing costs in 14 years hurt Capitec’s low-income customers and increased the bank’s bad debt to 10% in the year through February, compared with about 1% for its bigger rivals.

The bank has also pared back unsecured lending, as impairments surged 37%. 

As a result, lending to individuals climbed just 2%, while credit to corporates jumped 23%. It’s also building its insurance segment and expanding payment services. The diversification boosted non-lending income by 26% to 19.58 billion rand.

The bank proposed a dividend payout of R48.75 per share for the period, beating consensus estimate of R45.17.