Capitec shares slump after earnings update disappoints

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Shares of Capitec, South Africa's largest digital banker, slipped almost 10% at one point on Thursday, despite it flagging double-digit earnings growth for its half-year to end-August.

Headline earnings per share is expected to rise by between 15% and 18% to as much as R40.67, the lender said in a very brief update, while in midday trade its shares had lost 7.23% to R1 945.81. At the same time, rivals Standard Bank, FirstRand, Absa and Nedbank were all positive, although all had added less than 1%.

With the Bloomberg consensus for full-year headline earnings of R89.74, the trading statement implies that Capitec will struggle to reach that number, said Umthombo Wealth chief investment officer Alex Duys.

"We will have to wait for the detailed results to assess the reason for the potential consensus earnings per share miss. It is likely that consensus estimates will have to be reduced, thus explaining the share price sell off," said Duys.

Ashburton Investments senior equity analyst Daniel Masvosvere said the market will have to wait for Capitec to present its results in order to get colour on its performance, adding that one can't read too much into a trading update when considering a company's long-term investment case.

"Investors who like Capitec and hold it do so in large part for its growth, and so when earnings growth comes in below market expectations the stock will come under pressure," he said.

SA's banking industry has received tailwinds in 2022 as Covid-19 receded, helping to support a return of corporate lending, while surging inflation has also resulted in a climb in interest rates. This results in the so-called endowment effect, where higher rates can bolster loan repayments.

Standard Bank reported recently its headline earnings jumped by about a third to a record R15.3 billion in its half-year to end-June, while Absa also recently reported this measure of profit climbed 28% to R11bn in the same period.

Capitec booked just under R4bn in headline earnings during the six months to end-August 2021, up more than sixfold from the prior year, when lenders were battered by the emergence of Covid-19. Should Capitec achieve the full-year Bloomberg consensus, as it stood prior to its update on Thursday, this would have represented growth of almost 23% from the prior year.

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