SA's cheapest bank just keeps on giving

Johannesburg - Nothing, outside a financial-market collapse on the scale of the Great Recession, can faze Capitec Bank Holdings [JSE:CPI].

The lender’s stock has gained in all but one of the years since it began trading in February 2002, jumping more than 50 000%, the most among banks across emerging markets during that period.

Even as South Africa battles an economy ravaged by political unrest, the shares have climbed 24% this year, about eight times the rate of its peers on the FTSE/JSE Africa Banks Index.

Capitec, which specialises in providing loans that aren’t backed by assets to low-income earners, has seen its annual net profit jump almost 130 times since 2003 to R3.79bn as of the end of February.

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 large customer base offers an attractive opportunity to cross-sell other financial products in the future," said Harry Botha, a banking analyst at Avior Capital Markets in Cape Town.

And while others are losing customers at the bottom end of the retail market, Capitec is expected to attract more, according to Patrice Rassou, the head of equities at Sanlam Investment Management in Cape Town.

That expectation has helped boost Capitec’s stock this year, even as negative sentiment toward South African assets spurred the worst year-to-date performance for the banking index since 2013.

The shares have also been supported by its investor base. PSG Financial Services [JSE:PSG], a company founded by local businessman Jannie Mouton, who also started Capitec, and a group of so-called non-public shareholders own 46% of the lender’s stock, according to the bank’s latest annual report published in April.

PSG is the single biggest shareholder in the lender with a 31% stake, according to the report.

The stock’s meteoric rise has made them expensive. Capitec’s shares trade at about 20 times future earnings, compared with 10.4 for the banking index and 8.8 for the MSCI EM Banks Index. But the equity has been at a premium to its peers since at least 2014, and its estimated earnings-per-share has risen regardless.

The stock, which on Wednesday advanced 1.9% to close at R863, more than double the gain in the banking index, was trading 0.63% lower at R857.54 by 15:19 on the JSE on Thursday.

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