FirstRand BUY
Target price: R73.65 Potential upside: 5.1%
* Based on analysts’ consensus forecast
more income from net transaction income, Suskin says. “At the time it started it was necessary for it to build up capital in the higher-risk unsecured lending space.”
The brand now attracts significant deposit growth to the point where capital adequacy is far exceeded, allowing Capitec to pay a special dividend even after coming out of the Covid environment.
Capitec’s deposit book grew 11.7% to R132.4bn and its reliance on more expensive wholesale funding decreased 13.2% to R2.06bn for the year ended February. Earnings per share jumped 91% to R73.71 as credit impairments were sliced from R7.82bn in 2021 to R3.5bn this year. This allowed Capitec to declare a final ordinary dividend of R24.40 a share and top it off with a special
dividend of R15 apiece.
But while the numbers are spectacular, should you still buy the shares? Capitec stock has traded at much higher multiples than its peers for years. Then, on April 12, when Capitec published its annual financial results, the share price slumped 4.75% to R2,167.01.
At the time of writing, the share price had fallen for six consecutive days. Yet on a price-to-book
(p:b) ratio, it is still trading at 6.96 times and on a historic p:e at 29.45 times — vastly in excess of the traditional big four.
Concern about the longevity of the bank’s highgrowth figures is starting to rear its head.
Of the big five banks in SA, Capitec is this year’s worst performer so far, with a gain of just
5.4%. Compare that
with Nedbank’s 30% year-to-date rally, Standard Bank’s 22.5%, FirstRand’s 17% and Absa’s 16%. Over one year, however, Capitec has gained 56%, beaten only by Nedbank’s 57%.
“We like the growth story of Capitec and future prospects, but the share price is too expensive for us, both on a p:e and p:b basis,” says Mathidi.
“Even though the bank has been diversifying and seeking other growth avenues, the core of the earnings remains unsecured lending, which is cyclical. The governmentbacked collected side of the business is probably relatively safer.”
Mathidi adds that its exposure to employees in the mining sector — which may seem great now as commodities boom is cyclical.