|
Related Topics |
Background and overview of Capitec (CPI)
Capitec Bank is a retail bank in South Africa, that started life out as a micro-lender. The loans they advanced were unsecured (I.e not backed by a vehicle or property or asset being bought). Over the years Capitec has expanded at a tremendous pace and is currently the 5th largest retail bank in South Africa, the other four being, FNB, ABSA, Standard Bank and Nedbank.
Capitec announced that in the last 6months (March 2016 to end August 2016), they added around 648 000 new clients. Thats close to 110 000 a month. They have over 750 branches open and aim to end the year with close to 800.
Capitec has also announced it launched a new credit card offering for testing in the Western Cape, and if successful and testing has been completed credit card's will be rolled out to the rest of the country.
Capitec announced that in the last 6months (March 2016 to end August 2016), they added around 648 000 new clients. Thats close to 110 000 a month. They have over 750 branches open and aim to end the year with close to 800.
Capitec has also announced it launched a new credit card offering for testing in the Western Cape, and if successful and testing has been completed credit card's will be rolled out to the rest of the country.
Scroll over or click on the funnel chart to get more details of CPI's latest financial results
Financial review:
Capitec as mentioned above is the fastest growing retail bank in South Africa, with them adding on average around 1 000 000 new clients in the last year. Their growth has been astronomical. Their no thrills no fuss approach seems to resonate with clients. They have a policy of clearly informing clients upfront about the costs they will be incurring when taking out a certain product. The application process of their is simple and efficient too and they seem to be able to get things done at a much faster rate than the other banks. Their slogan "Simplicity is the ultimate sophistication" does seem to run through the whole group's operations. No fancy furniture and gimmicks in their branches. Just quick and efficient service.
In addition to this Capitec branches are open 7 days a week, something other banks are not doing and this has helped with them achieving such strong new client sign up numbers. Currently they are sitting with 7.9million active clients.
Capitec has also aggressively promoted their banking app and currently 3.2million people are using their banking application.
In addition to this Capitec branches are open 7 days a week, something other banks are not doing and this has helped with them achieving such strong new client sign up numbers. Currently they are sitting with 7.9million active clients.
Capitec has also aggressively promoted their banking app and currently 3.2million people are using their banking application.
The graphic below shows the contribution of Capitec's main income streams to their total income, What is clear from the graphic is that most of Capitec's money is made from interest charged on the loans they advance. It made up 74.9% of total income earned.
As we mentioned in our previous review of Capitec, their focus should be on extracting more money from transactions fees. This seems to be happening pretty rapidly as income earned from transactions fees increased from 18% of total income earned in previous half year results to just under 20% for this set of half year results . We are sure that Capitec's continued focus over the long run would be to have a lessor dependence on interest income earned and a greater percentage of income earned from transaction fees. These fees would include monthly admin fees, ATM withdrawal costs, statement requests and more recently, credit card account fees.
As we mentioned in our previous review of Capitec, their focus should be on extracting more money from transactions fees. This seems to be happening pretty rapidly as income earned from transactions fees increased from 18% of total income earned in previous half year results to just under 20% for this set of half year results . We are sure that Capitec's continued focus over the long run would be to have a lessor dependence on interest income earned and a greater percentage of income earned from transaction fees. These fees would include monthly admin fees, ATM withdrawal costs, statement requests and more recently, credit card account fees.
As mentioned in our earlier revies of Capitec, we expected that bad debts will start increasing as more and more clients default on their loan repayments. In their year end results for 29 February 2016, they mention that they impair roughly 11.4% of loans issued. Basically writing this money off saying there is no chance of collecting these outstanding money. For the half year results ending August 2016, the rate for the 6months was sitting at 6.2% (or 12.4% if annualised). So there is an increase in impairments as we suggested there might be.
Their earnings/profit per share came in at R15.17 per share (putting them on a PE 19.8), and cash generated per share came in at R40.65 a share (R4.8billion and 116million shares in issue). Showing Capitec is an extremely strong cash generator. And this is part of what we like about the share.
Their earnings/profit per share came in at R15.17 per share (putting them on a PE 19.8), and cash generated per share came in at R40.65 a share (R4.8billion and 116million shares in issue). Showing Capitec is an extremely strong cash generator. And this is part of what we like about the share.
A few financial ratios to mull over for CPI (calculated using our Financial Ratios Calculator):
- Debt to Equity Ratio:3.6 (more than 2 shows high levels of financial leverage).
- Current Ratio: 0.29 (A measure of liquidity. Less than one signals possible trouble in paying off current liabilities).
- Quick Ratio: 0.29 (Another liquidity measure. Shows how much in liquid assets is available to cover current liabilities or short term debt).
- Return on Assets (ROA): 2.25%
- Return on Equity (ROE): 10.38%
- Net Profit Margin: 19.96%
- Dividend Yield: 1.49%
Valuation:
While the consumers in South Africa are under pressure, there seems to be little stopping them from taking on more and more debt. While it is a good thing for Capitec, rising interest rates will put a damper on future earnings as bad debts are sure to start climbing steadily. Based on Capitec's current financial results, its brands and the market they operate it, we value them at between R599 and R601.00 (putting them on a PE ratio of 19.8, but one has to put it into context in terms of their strong growth path and potential future earnings growth).
We therefore feel at its current price (R609), Capitec is fully priced especially considering the fact that increasing impairments might be curbing future earnings a little bit, and the fact that other banks are trading at far lower PE multiples and much higher Dividend Yields.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.
We therefore feel at its current price (R609), Capitec is fully priced especially considering the fact that increasing impairments might be curbing future earnings a little bit, and the fact that other banks are trading at far lower PE multiples and much higher Dividend Yields.
We use our Share Valuation Calculator as guide to valuing shares. We believe in value investing and our above mentioned share valuation is based on the underlying fundamentals and financial statements of the stock in question.