Capitec ends year on a high
But Standard Bank is analysts’ stock pick for 2018
Capitec’s share price blazed past those of its competitors in 2017 and was heading for the R1,000 mark on by Thursday. It last came close to this level on December 5.
Capitec briefly overtook Nedbank as the largest bank by market capitalisation in September, shortly after the latter’s shares sank after the release of its interim results for the half-year to June, which reported its first contraction in earnings since the global financial crisis.
As Capitec reached nearly R892 per share for a market value of R103bn, Nedbank’s shares were at R205 for a R102bn market value.
In September, analysts at JP Morgan said Capitec remained one of the few growth stocks in the local financial services universe, lifting their projections for the share to R950. This is based on a 10% total return JP Morgan expects from the bank for its 2018 financial year as its credit card offering gains traction and launches new products.
But the share has since surpassed that and was trading at about R958.47 on Thursday afternoon. Still, analysts polled by Business Day did not select Capitec as their stock pick for 2018. Standard Bank has claimed that victory.
"So far in 2017, Standard Bank has given a return of 19%, whereas investors in Barclays Africa have lost 4%," said Jacques Plaut, portfolio manager at asset manager Allan Gray.
"It is unusual to see such a large disparity in returns from the sector. Capitec has done better still, up 37%."
Barclays Africa has battled to keep up with peers, even as it got rid of the overhang caused by former British parent Barclays plc’s announcement that it would sell off its majority shareholding. A 6.7% dividend yield, coupled with an expected increase in the percentage of profits set aside for dividends
in the near future, did little to tempt investors.
At Standard Bank, lower dividends did not deter investors, who bought into the bank’s growth story. Standard was the only big bank to deliver earnings growth in the double digits during the six months to June and analysts expected it to keep up this momentum as it would suffer the "lowest impact" from a downgrade of SA’s investment grade status and it reaps the fruits of its IT spend.
FirstRand reports its results for the year in June, which makes comparison difficult.
"Standard Bank has done the best on the back of their strong turnaround in Africa," said Patrice Rassou, head of equities at Sanlam Investments.
"It looks like they are poised for another strong year, so would be my top pick."
After S&P Global Ratings downgraded the government’s local debt rating, there are rumblings about avoiding banking stocks, which are sensitive to macroeconomic developments.
But Plaut said Allan Gray believed there was still decent value in the sector.
"Standard and Investec are in our top 10 and we own Nedbank via Old Mutual, which is our third-largest share."