Bancassurance may be next for Capitec
CAPITEC continues to deliver double-digit growth in headline earnings per share. But the growth is slowing, which tells two stories. One, Capitec’s growth is no longer from a low base, and two, loan growth has fallen while bad debts have been rising faster.
Two years ago Capitec posted headline earnings per share growth of 53% in the six months to endAugust 2011. In the same period last year, headline earnings per share growth was 35%, still solid.
But in the 2013 interim period, headline earnings per share had risen 20%. The growth is slowing, but if one compares it to traditional banks, the earnings growth at Capitec is equal to FirstRand, the best performer of the big four.
Gerrie Fourie, the CEOdesignate who takes over from Riaan Stassen next year, has a big task to ensure that the growth the headline earnings per share is not further reduced. Mr Fourie’s immediate task will be to reduce bad debts, which rose 92%, and increase transaction income, which now makes up 30% of the bank’s income.
Mr Fourie may want to consider another business line to grow noninterest revenue and reduce reliance on income from lending. He may want to suggest to chairman Michiel le Roux and Mr Stassen that it would not be a bad idea to introduce a bancassurance model. Capitec has been able to change the banking landscape in SA by offering simple, transparent and low-cost banking. The company may want to consider a low-cost, transparent and simple insurance solution. Worldwide, Carlson Rezidor, Accor and Marriott are already blazing the trail. Local players such as City Lodge and Protea are also tapping into the market.
In SA, the sector is steadily showing signs of recovery, with occupancies on the increase after the recession and the slump that followed the 2010 Soccer World Cup. But countries further north are the ones attracting attention, as growth prospects lure investors.
Mozambique is fast becoming a prime market for foreign investment with the recent growth in agriculture and mining, as are Ghana and Zambia. The Nigerian hotel market is experiencing a business travel boom. PwC forecasts the number of available rooms in Nigeria rising from 8,000 last year to 21,000 in 2017.
But there is a caveat: Africa is not an easy place to do business. The recruitment and training of staff, logistics, water and power supply, and securing property in a good location, can be difficult. Most hospitality companies agree that having a local partner who has on-the-ground knowledge and understands a country’s business and legislative framework can help.
Nick Wilson edits Company Comment (wilsonn@bdfm.co.za)