Why the market’s not keen to tip a cap to Capitec
Capitec’s expectations of up to 21% headline earnings growth in the six months to end-August failed to impress the market on Thursday, despite analysts saying this was slightly ahead of consensus expectations.
Headline earnings per share are expected to rise by between 18% and 21% for the six months to end-August, Capitec said in an update, with the bank closing 0.56% lower at R980.70.
This compared to a 2.68% rise in the JSE’s banking index, lifted on the day by upbeat results from rival group FirstRand, and a strengthening of the local currency.
The subdued reaction is likely to be due to Capitec’s high price:earnings ratio, which would lead the market to expect growth in the range of 20%, said banks and speciality finance analyst at Avior Capital Markets Harry Botha.
Jaap Meijer, banking analyst at Dubai-based Arqaam Capital, said Capitec’s trading statement was still slightly ahead of consensus expectations.
Operationally what it meant was that Capitec is likely to still see very good transactional banking growth, probably in line with the prior period’s 29% growth, said Botha.
Capitec reported a 17% growth in earnings to R2.05bn in the six months to end-June, with the company saying at the time that transaction fee income had covered 76% of operating expenses, contributing 40% of net income. The company currently has a price:earnings ratio of 25.4.
The company’s share price, along with those of other SA banks, has been under pressure in 2018 and the bank has not fully recovered from a 27% plunge in January, when it became the latest target of a report from Viceroy Research.
The short seller described Capitec as a "loan shark with massively understated defaults masquerading as a community finance provider".
Capitec dismissed this claim, while the Reserve Bank said that, based on the available information, Capitec was solvent, well capitalised and had adequate liquidity.
Capitec’s share price remains 10.68% lower in 2018, compared to a 5.64% fall in the bank’s index.