Guiding consumers since 2009

Capitec set for a tough year

By Staff Writer

IN WRITING yesterday about the ratings of the banks, I looked only at Absa, RMBH, Standard Bank, FirstRand and Nedbank. Their average historic price:earnings ratio was 7,7.

Investec, which is not a component of the JSE banks index, was not part of the arithmetical exercise. It is interesting to note, however, that the share, trading at a price of about R60, has a historic price:earnings ratio of 7,8, just about the same as the average above.

Investec’s (INL) historic rating is, however, based on older earnings figures as its financial year ends in March and not in December, like the others. This also means the market is rating Investec less favourably than the other big banks.

Investec’s year-end figures will be published on May 15. My appetite to review its latest figures was whetted by this month’s issue of Noseweek. The story was on a legal action to stop an Investec subsidiary, Investec Employee Benefits, transferring R13bn of assets to Capital Alliance. If you can stand the pain, read the story yourself. I doubt there’ll be any additional information on the legal action in Investec’s year end report, but it’s an appetiser.

The historic price:earnings ratio of Capitec, which is a constituent of the JSE banks index, was also not part of the average. I excluded it because its weighting is small — its market capitalisation is about R3bn, minuscule compared with that of Standard Bank (SBK), which is approaching R100bn. I also left it out because I don’t like its core banking — microlending, at what I regard as exorbitant rates of interest.

This form of credit is a real need and it’s a good thing that regulated providers, such as Capitec (CPI), offer the service.

Here’s a useful perspective of this particular service — last year, the bank advanced R5,1bn through 3,15-million loans, an average loan amount of R1636.

This large number of clients relative to the small average loan enables the bank to afford wastage from bad debts. But the bank has to provide swift and efficient individual credit assessment to give immediate gratification for the client. Excellent technology makes this possible.

Access to customers and potential customers is through its branches, which, at year-end, numbered 331, or 18% more than the 280 branches a year earlier. Capitec significantly increased the number of its own ATMs, its number of partnership ATMs and its mobile facilities.

The other side of providing credit is providing savings products. Last year, Capitec’s value of savings deposits increased by 52% to R842m from R554m in 2006. Its number of saving clients increased by 34% to 783000 from 583000. The average deposit was, therefore, in the region of R1000.

I reckon this will be a tough year for Capitec. Again, use the historic ratings for last year as forward for this year. At a share price of R34,50, its earnings yield is 7,5%, its price:earnings ratio is 13,33 and its dividend yield is 2,9%. These ratings tell us that the market expects better earnings growth for Capitec than for the other banks. This doesn’t mean I must change my mind and buy some of its shares.

nBen Temkin’s e-mail is bentem@mweb,co.za.

Recent Articles

Featured Can you take out vehicle finance on an old vehicle?

As it turns out, creditors have several concerns regarding cars older than 10 years. Justmoney has a look at why creditors are sceptical of older vehicles and what you can do to get around this.

Should you have a living will in place?

When you hear the word will, the only thing that comes to mind is the document that states who is going to inherit you property when you’re dead. But have you thought about who’s going to decide what happens to you when you become incapacitated? A living will can help you do just this.

Know the difference between a loan and a credit facility

Choosing the correct product according to your needs is critical in making smart financial decisions. Credit options can be separated into two main categories – loans and credit facilities. But for some people, the lines can be quite blurred between the two.

Is property a good investment?

It’s good to consider whether property is a good investment. Justmoney spoke to numerous specialists to find out whether this is the case in South Africa.

Deals

DaVinci’s on Kloof Students Discount

Price: Available on request
When: Daily
Where: Cape Town

Ghandi's Backpackers and Guest Lodge 10% Discount

Price: Available on request
When: Daily
Where: Johannesburg

Fairway Hotel Happy Hour Special

Price: Available on request
When: Until 13 December 2019
Where: Johannesburg