Capitec passed Nedbank as South Africa’s fourth-largest lender by value to extend a market-beating rally that has made it the country’s best performing stock.
The shares of Capitec rose 2% in Johannesburg on Thursday to close at R891.03, giving it a market capitalisation of R103bn and extending gains this year to 28%. Nedbank climbed 0.9% to R205 for a market value of R102.1bn, paring its decline in 2016 to 14%.
Capitec’s assets don’t amount to even a 10th of those of Johannesburg-based Nedbank, which owns a retail and investment bank, wealth-management businesses and a stake in Africa’s most geographically diverse lender.
Capitec’s stock has gained in all but one of the years since it began trading in February 2002 at about R2.60. That’s the most among banks across emerging markets during the period and the best performer in South Africa’s benchmark Top40 Index.
“Capitec is gaining retail clients at a rate that makes it bigger than Nedbank,” said Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town. The lender also grabbed market share when it launched its card business, which is “a huge growth vector,” he said.
Originally a purveyor of unsecured lending, Capitec broadened its product range into savings and credit cards to defy an economy ravaged by political turmoil and growth that the central bank estimates will reach 0.5% this year. It has expanded faster than the nation’s four biggest banks, adding 1.3 million customers in the last fiscal year alone to 8.6 million.
“Capitec’s simple bank model, absence of brick-and-mortar branches, modern technology and high growth rate has appealed to investors both locally and abroad,” said David Shapiro, the deputy chairperson of Sasfin Wealth in Johannesburg. “Management was nimble and easily attacked the big banks in a segment of the market that they had overlooked or perhaps felt was too difficult or risky to service.”
Earnings per share in the six months through August 31 will probably increase as much as 18%, Capitec said on September 6, extending a run that has seen its annual net income jump almost 130 times since 2003. Nedbank said on August 2 that first-half net income declined 3.7%, weighed down by losses at Ecobank Transnational, which makes the bulk of its money in Nigeria.
The company’s run might be nearing an end, with Capitec trading at more than 20 times future earnings compared with less than 8 for Nedbank, according to Richard Hasson, a money manager at Electus Fund Managers in Cape Town.
It is “unlikely that they will deliver growth in earnings at similar levels to the past,” he said. “Capitec is overvalued relative to their growth prospects.”
The JSE listing of SA billionaire Patrice Motsepe's African Rainbow Capital Investments (ARC Investments) reflects the progress of transformation in the financial services sector, a JSE spokesperson said on Thursday.
ARC Investments made its debut on the South African bourse at 09:00 on Thursday, with the share opening trade at R8.68.
Speaking on the significance of the listing, director of capital markets at the JSE Donna Nemer said creative ways such as this are needed to enable economic transformation. "We need to find creative ways to accelerate economic transformation.
"Using capital markets to do that is the best you could hope for. That allows direct membership of individuals with assets that can be invested towards transformation."
In his address, Motsepe said this listing comes after a 17-year journey. "I put aside R200m about 15 years ago. It was part of a strategy to diversify and get into financial services," he explained.
At the time Sanlam CEO Johan van Zyl and Motsepe decided to work together to help build investment and equity in Sanlam, which was going through a difficult time, as well as a "world class" financial services company. "We had to compete not just against the best in South Africa, but against the best in the world."
Motsepe also expressed his gratitude to the board which helped make the listing possible. "Black and white South Africans can work together, not just to build world class companies but also to create jobs and express our confidence in the economy.
"Despite our political challenges, this country has got the most wonderful people, the most caring, entrepreneurial, hardworking people. That gives us confidence." ARC Investments is a capital raising and investment entity incorporated in Mauritius. Investors will have the opportunity to invest in a permanently broad-based black controlled company with a diversified portfolio of investments.
African Rainbow Capital Proprietary Limited (ARC) will remain the majority shareholder of ARC Investments. Shareholders will invest alongside ARC in the initial portfolio, which is made up of 16 investments in the financial services sector and 17 non-financial services investments.
Financial services include interests in Alexander Forbes Limited, Alexander Forbes Group Limited, Indwe Broker Holdings, Senayo Securities and Santam. The portfolio includes investments in agriculture and food production, building and construction, energy, information technology and communications, investment holding companies and real estate businesses. Investments in telecommunications are most significant.
Motsepe's African Rainbow Minerals annual results for the year ended June 30 were also released on Thursday. Headline earnings increased 204% to R3.19bn, with headline earnings per share at 1684c compared to the 494c reported previously.
ARM declared its highest dividend to date at 650c per share, up 189%.