Capitec shares surge as annual earnings growth lifts market
Chief executive officer attributes success to digital expansion and diversification
CAPITEC's share price surged 7.79% yesterday after reporting strong earnings growth of 16% to R10.6 billion for the year to February 29.
South Africa's biggest mass retail bank had benefited from three years of diversification and from increasingly moving its clients into the digital space, CEO Gerrie Fourie said yesterday.
The final dividend was raised by a fifth to R33.45 per share. Fourie's executive pay and incentives increased 5.8% to R65.79 million.
He said despite the tough economy, second-half growth was particularly strong at 25%. The R6.3bn that had been invested in products, new businesses, platforms and IT over three years had diversified the business from its early reliance on credit, and non-interest income now contributed 72% of total income.
The share price closed 7.79% higher at R2 173.78 on the JSE yesterday.
He said that while analysts had predicted Capitec's transactional income to increase between 18% and 19% for the year, in fact the figure had come in at 29%.
Capitec's active client base grew 10% to 22 million, while app users increased 19% to 11.2 million. Transaction volumes increased 21% and transaction and commission income grew 29% yearon-year to R14.8bn.
Fourie said in an online presentation that Capitec's strategy remained to shift the market towards digital banking while maintaining a competitive advantage through branch service delivery – the group has 866 branches, and consultants in those branches were key to helping clients move on to their digital platforms, he said.
“Over the last three years, we've invested R6.3bn in re-platforming our systems and migrating our data to AWS Cloud services, developing innovative payment solutions, and building three new businesses to unlock value for clients,” he said.
In the past year, initiatives, including Value-Added Services, Payments and Capitec Connect, contributed R2.9bn in net income. The insurance business, in the midst of a migration from Sanlam to be completed in the new financial year, contributed R3bn, and Business Banking added R478m in taxed profit, up 23%.
A key initiative was the launch of Capitec Business that was rebranded from Mercantile in March.
The bank implemented a new online banking platform, moved to a single Capitec app for business and personal banking, and implemented cloud-based banking, CRM and lending solutions.
The new platform allowed clients to onboard remotely in minutes with no paperwork and gave them access to a business banker.
Capitec Business also re-priced on March 1 to a monthly fee of R50 for all business types and the same low transaction fees as personal banking for all businesses, which Fourie said would amount to significant savings for small business owners.
On March 11, Capitec received SA Reserve Bank approval to increase ownership of AvaFin, an international consumer online credit provider, from 40% to 97%.
Fourie said Avafin, which operates in Central Europe, Spain and Mexico, was an opportunity to diversify Capitec's income sources and build on its experience in foreign markets.
He said there remained tremendous value in South Africa to unlock through a combination of retail banking, business banking, insurance and value-added services.
Fourie said credit loss ratios had declined somewhat since August, and additional pockets of credit might be loosened as the group had, compared to the other banks, taken a very aggressive stance on tightening credit last year.
He said the inflation environment remained uncertain, because although food inflation had declined this year, oil prices, the rand-dollar exchange rate and further global geopolitical tensions had the capacity to increase inflation in the year ahead.
Capitec is growing faster in the higher income segment as clients with inflows of more than R15 000 a month into their account increased by 17%.
The credit card, banking app, digital payment, purpose-lending solutions, and interest on fixed-term savings accounts, all at the same low fees, had helped to attract these clients, Fourie said.