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Capitec Bank (CPI) will be the stock in focus: (Price at time of writing: R574.23) - Date: 23 March 2016
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 has 6.2million clients, 668 branches and 10 200 employees. Over the last 12 months (end 2014 financial year to end 2015 financial year), Capitec opened 39 new branches, added 900 000 clients and opened up 500 new ATM's. It is currently the fastest growing bank in South Africa.
Capitec has 6.2million clients, 668 branches and 10 200 employees. Over the last 12 months (end 2014 financial year to end 2015 financial year), Capitec opened 39 new branches, added 900 000 clients and opened up 500 new ATM's. It is currently the fastest growing bank in South Africa.
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 900 000 new clients a year for the last 2 years. 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.
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. With it making up 76.9% of total income earned. We are sure that Capitec's 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 etc.
If Capitec can keep up the momentum that they have been gathering over the last couple of years, and not fall into the trap of just pushing for as many clients as possible, but actually keep providing a quality service to their new and existing clients, they have a very bright future ahead. With new services (credit card, vehicle loans etc) coming online, there is no reason why Capitec cant break into the mortgage loan market and steal significant market share from the other banks in that space.
Capitec should however remain mindful of the fact that interest rates are in an up cycle and bad debts will increase, and their riskier clients will soon start defaulting.
Capitec should however remain mindful of the fact that interest rates are in an up cycle and bad debts will increase, and their riskier clients will soon start defaulting.
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 financials, its brands and the market they operate it, we value them at between R553.70 and R555.00.
We therefore feel at its current price it is a little expensive, especially considering the fact that higher interest rates might be curbing future earnings. We will revalue Capitec after their next set of financial results.
We use our Share Valuation Calculator as guide to valuing shares.
We therefore feel at its current price it is a little expensive, especially considering the fact that higher interest rates might be curbing future earnings. We will revalue Capitec after their next set of financial results.
We use our Share Valuation Calculator as guide to valuing shares.