Algorithms ‘to blame for Capitec stock fall’

Capitec Bank has come out in defence of its business fundamentals in the wake of a share plunge of 44% since Friday.

Its share price has weakened from R1,200 on Friday, closing at R682.50 on Thursday, but had fallen to a low of R539.80 earlier in the day.

Analysts say the bank faces the same risk and exposure to the weak SA economy as its peers and other SA consumer stocks that have plunged in the wake of the spread of the novel coronavirus and global economic strain.

Since the close of markets on Friday, FNB’s share price has fallen by 31%, Standard Bank 25% and Absa 32% while the banking index has fallen 31.4%.

But Capitec’s share price dropped as much as 28% on Wednesday, a dramatic one-day fall that has led to concern.

Capitec said in a statement that international traders motivated by the continued weakening of the rand had sold the bank’s shares on Wednesday, leading to a price drop.

As the share price dropped, algorithms used by professional traders prompted the automatic disposal of the shares.

Analyst at Avior Capital Warwick Bam said a forced sale is not “unusual in a market desperate for liquidity”. But such a sale leads to “unusual share price movements”.

Despite the sudden fall in the share price, Capitec is not any weaker than other banks and faces the same constrained SA economy, he said. “There are no unusual risks specific to Capitec, relative to the banking sector.”

Nolwandle Mthombeni, an investment analyst at Mergence, said Capitec “is not unique [compared with] any other consumer-facing stock and other banks [in the country], which are subject to the same macroeconomic risks”.

Capitec’s large unsecured loan book has at times spooked investors after the failure of African Bank in 2014, which collapsed under the weight of bad debts.

Capitec explained that only 9% of its 12.6-million customers have loans and it has a growing proportion of middle-class customers.

Transaction fees and funeral insurance sales cover 91% of its operating expenses.

28% The drop in Capitec’s share price on Wednesday

31.4% The fall in the JSE banking index since Friday