Capitec’s profit growth undented

In the clearest indication yet that the economy and new competitors have not yet hit its business, Capitec, SA’s third-largest bank by market capitalisation, says it expects headline earnings to increase 18%-21% for the year to end-February.

In the clearest indication yet that the weak economy and new competitors have not yet hit its business, Capitec, the country’s third-largest bank by market capitalisation, said on Friday it expected headline earnings to increase 18%-21% for the year to end-February.

In a trading statement ahead of the publication of its full-year results, the bank said it expected headline earnings of between R54.01 and R55.38 per share.

The market appeared to favour the news, despite the 1.8% decline in the bank’s share price on Friday, which saw it close at R1,325.

Some of Capitec’s competitors, which comprise the country’s big four commercial banks, had a much tougher day on Friday, as the coronavirus outbreak continued to weigh heavily on markets. Standard Bank Group performed the best, falling just 1.66% to R150.10 per share after reporting flat earnings on Thursday, largely due to losses incurred in its minority 40% stake in ICBCS. Absa (-4.45%), FirstRand (-5.46%) and Nedbank (-3.18%), all experienced sharp sell-offs.

Capitec seems to be bucking the trend in the midst of bank earnings season. Nedbank reported a 7% decline in headline earnings for the year to endDecember as higher impairments and lower client activity led to a decline in profits.

Standard Bank Group would have reported a moderate increase in earnings had it not been for its R1.4bn share of the losses in ICBCS, in which it is a minority partner with its largest shareholder, the Industrial and Commercial Bank of China. The week ahead will see FirstRand reporting interim results on Tuesday. Absa, under new CEO Daniel Mminele, will report fullyear results on Wednesday.

Capitec’s sustained growth also comes at a time when new competitors have opened their doors or ramped up their offerings. The new banks considered to compete most directly with Capitec include Patrice Motsepe’s TymeBank, as well as the revitalised offering of African Bank led by Basani Maluleke. Michael Jordaan’s Bank Zero is expected to open later in 2020.

Neither is Capitec standing still. After it successfully bid for Mercantile Bank, which offers a range of business banking solutions, investors will be eager to hear more on what the forthcoming Capitec business banking offering comprises.