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Should you be investing in Capitec?

By Danielle van Wyk

Despite a difficult financial climate Capitec have managed to produce a healthy set of financial results for the year ending February 2017. This has sparked investor interest as people looking for a good investment story and are encouraged by the growth of the bank that appears to be taking on the big four head on.

“Headline earnings per share (HEPS) increased by 18% from 2 787 cents in 2016 to 3 281 cents per share in 2017 and we generated a return on our shareholder equity of 27% for the year consistent with the prior year. Our objective is to retain a return on equity between 22%-27% over the next five years,” stated Capitec.

Substantial Capitec brand acceptance, combined with the expansion of branch, ATM and their digital footprint, has further resulted in a record growth of 1 300 000 new clients during the financial year and active clients totalled 8.6 million by year-end, Capitec added.

This success, against the backdrop of a volatile financial industry can be attributed to, “Capitec’s nimble, innovative and entrepreneurial nature. Unlike the large banks, it is able to grow market share and profits almost regardless of the prevailing economic situation. Fintech companies around the world are showing themselves to be so adaptable and Capitec is no exception. Across all demographics-from labourers and gardeners to cleaners to company executives, Capitec’s no-nonsense, no frills approach to banking has a lot of attraction. And especially in a constrained economic environment, where every rand counts, its clever pricing structure is a huge attraction,” explained investment analyst society chair, Chris Gilmour.

Is Capitec considered a good investment?

One of the newer entries into the banking industry, Capitec is by far the most highly rated bank in the sector, according to Gilmour.

“Capitec is a great investment. Over the past twenty or so years that it has been in existence, it has turned in remarkable compound annual growth in earnings, dividends and share price. However, investors who buy now have to be confident that their outstanding growth is going to continue for the foreseeable future. If that is the case, then Capitec shares can be bought, even at these rarefied levels, for the longer term,” Gilmour warned.

Capitec going forward

In the last financial year Capitec have embarked on quite a number of new ventures, the latest being the recent acquisition of Cream Finance.

“We are excited about the innovation across all three integral parts of our business and have diversified and expanded our product offering with the launch of a credit card during the past financial year.  We have also recently acquired an interest in Cream Finance Holding Limited (Cream Finance), and crossed our South African borders. We believe this working relationship is aligned with our vision and will allow us to deliver cutting edge financial solutions to people across the globe,” added Capitec.

“The Cream Finance acquisition for $22 million (R 297160600.00) is an excellent acquisition. Online banking is the way of the world and is a natural adjunct to Capitec’s existing business.  It wouldn’t surprise me to see a meaningful chunk of Capitec’s future earnings emanating from offshore, and specifically from online offshore operations,” Gilmour remarked.

The bank further identified these as being their top areas of growth for the coming financial year:
-Diversification of product range
 – Service delivery to clients through the increase of the branch network, ATMs and DNRs
 – Continuous innovation of simple, transparent and affordable digital banking platforms
 – Investment in infrastructure (staff and information technology)
 – Expansion into other markets

The commercial bank, founded in 2001, has time again been dubbed South Africa’s most cost effective bank, and the commitment to this remains, concluded Capitec.

Capitec shares are currently trading at R774, 60, but is subject to fluctuation.

Handy tip:  Should you be looking to invest but want to start small, why not consider applying for a unit trust through Justmoney today. 

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