Capitec enters big four territory
Capitec has overtaken Nedbank in terms of market capitalisation despite having only a 10th of Nedbank’s assets. On Friday, Nedbank traded at R204.99 with a market capitalisation of R102bn.
Capitec has overtaken Nedbank in terms of market capitalisation despite having only one-tenth of Nedbank’s assets.
On Friday, Nedbank traded at R204.99, with a market capitalisation of R102bn.
Capitec rose to a new high of R911 with a market value of R105bn, meaning Nedbank has fallen out of the top four big bank league, represented by Firstrand with a market cap of R306bn, Standard Bank with R266bn and Barclays Africa at R120bn.
Nedbank’s total assets, reflecting its lending base on the balance sheet, stands at R965bn, while Capitec’s total assets amount to R73bn.
“Capitec’s robust risk management processes and correct pricing of risk has meant it had been able to navigate the macro challenges prevailing relatively unscathed,” said Momentum SP Reid analyst Brian Mugabe.
Nedbank is trading at a price: earnings ratio of 9 and Capitec is at 27.
Capitec’s share price dropped sharply last week after informing the market it expected interim earnings at end-August to be 15%-18% higher compared with the previously comparable period. It soon recovered but the price dip again indicated the high regard the market has for Capitec, having risen 31% in 2017. Nedbank is down 13.9% over the same period.
One analyst, who cannot be quoted in line with company policy, said Capitec’s growth showed it may not be the best option for local banks to diversify into global markets as Capitec has proved that the local market had vast, untapped potential for basic banking services. He mentioned the fate of Investec plc, which has a market cap of R64bn and Investec Limited at R30bn, despite diversifying activities to London a decade ago.
Nedbank also took the global route with its investment in Ecobank, the West African banking outfit. Nedbank recorded losses of R1.1bn on Ecobank for the interim period to June.
Return on equity at Nedbank at group level amounts to 14%, below the five-year average, as opposed to Capitec’s 25.8%.
Analysts expect Capitec to continue to outperfom, with management sticking to a proven success record, rather than expanding offshore.
Capitec has dipped its toes into global outfit Cream Finance, an online digital loans company, but remains firmly focused on the domestic market.
Bad debt at Capitec is expected to climb further from a nonperforming loan (NPL) level of 6.3%, or R2.9bn, but the group remains adequately capitalised with a capital adequacy ratio of 33.9% at year-end to March.
Nedbank has R20.2bn bad debt on its books, with a NPL ratio of 2.80%.
Capitec has only a market share of 2% among customers earning more than R30,000 per month. Client acquisition remains an important aim with the group gaining another 150,000 new clients at the end of March.
The aim is to increase its share of the above-R30,000 market to at least 20% by offering mainstream banking products, such as credit cards. About 100,000 customers have taken up credit cards, with the maximum amount increased to R80,000, from R50,000.
This is expected to bring more risk on Capitec’s balance sheet, but last week’s trading update indicated risk was still well managed and had not affected earnings.
The continued increase in Capitec’s customer base “is the catalyst for the expected ongoing growth in earnings,” Mugabe said. Capitec clients may apply for a new home loan or switch their existing home loan through a partnership with South African Home Loans.
Capitec is set to release its interim results on September 27. Nedbank’s annual results are due to be released after the December year-end.
CAPITEC’S ROBUST RISK MANAGEMENT PROCESSES … MEANT IT HAD BEEN ABLE TO NAVIGATE THE MACRO CHALLENGES