Capitec overtakes Nedbank, now SA's fourth-largest bank by value

Johannesburg - Capitec [JSE:CPI] passed Nedbank [JSE:NED] 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.”

Diminished prospects

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.”

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