Capitec share price falls after publication of half-year results…

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South Africa’s biggest retail bank may have increased customer numbers by 13% in the six months to August and boosted profits by 17%, but investors were unconvinced by the tone cautiously optimistic of Capitec.

Capitec’s share price plummeted Thursday, September 29, after the announcement of Capitec’s interim dividend, despite a 16.7% increase in the dividend.

After the announcement of the interim results, the share price plunged 10% to close at R1,615.14, then fell another 4% to close at R1,553. Shareholders have suffered a 33.29% hit in the past six months.

National and global uncertainty, caused by Russia’s war in Ukraine, power cuts and flooding in KwaZulu-Natal, added to an already uncertain economic environment, which further eroded consumer confidence and added significant tensions.

Bad debts written off decreased to R2.5 billion from R3 billion last year, due to lower cancellations of Covid-19 related reschedulings which amounted to R312 million.

This tension is reflected in a worrying increase in the number of clients being examined for debt. Loans that were more than three months past due, had legal status or where customers had requested a debt review in the previous six months rose to R11.1 billion (from R9.3 billion ).

Rollovers in the event of default across all sectors returned to levels previously seen in 2019. Over the six months under review, requests for debt review increased by 18%.

Fourie said customers’ financial stress has also increased. A client in financial difficulty is defined as having less than 20% disposable income, after accounting for debts and expenses. In 2019, 11% of customers were stressed, while in 2022 this figure had risen to 13%.

Operating profit before tax and credit impairments rose 24% to R8.8 billion from R7.1 billion a year ago. Lending income rose 13% to R8 billion and net income from life insurance and funeral plans soared 64% to R1.5 billion.

As customers migrated to digital and POS transactions, transaction volumes increased by 26% and banking application volumes increased by 51%, from R340 million to R515 million, accounting for 65% of the total digital transactions (compared to 55% in August 2021).

Shift to high-income customers

Capitec has shifted its focus to high-income customers in recent years, with almost no credit extended to low-income customers. Credit given to new customers earning more than R50,000 increased by 49%.

Last week, the bank entered the mobile virtual network operator (MVNO) market, through a partnership with Cell C. Capitec Connect combines low, fixed prepaid rates with plans that do not expire, unlike competitors which are valid for variable periods up to six months from the date of purchase.

Eight million Capitec customers already buy prepaid data and airtime on the bank’s digital channels and Capitec Connect will offer rates nearly 50% below the average market rate.

There are no out-of-bundle charges, data costs R4.50 per 100mb, voice minutes 90c per minute and SMS 25c each. There are no transaction fees for top-up and customers can top-up via USSD or their Capitec app.

The Live Better rewards program has 8.5 million registered customers, who benefit from Bank Better rewards, automated savings tools and Spend Better partner rebates, which are on track to save customers approximately $1 billion. rands by the end of February 2023.

Capitec’s investment bank, which grew by 60%, contributed R201 million to the group’s profits for the period under review. Fourie said the total number of business banking customers, including POS merchants, increased 14% to 142,185 in the current period.

Capitec acquired Mercantile Bank in November 2019 and will rename it Capitec Business in the next fiscal year.

Fourie acknowledged that the year had not been easy, with consumers absorbing considerable stress during this period “due to inflationary pressure, higher interest rates and record fuel prices”.

He struck an optimistic note, adding that Capitec had grown steadily over the past five years despite the tense environment.

The group’s overall profit, which is based solely on operating and capital investment activities, increased by 17% from R4 billion to R4.7 billion for the comparative period, which Capitec attributes to its more customer-centric approach through technology.


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Number of customers and transaction volumes

Capitec – SA’s largest retail bank by number of customers – has seen a surge in customer numbers, increasing its customer base by more than 165,000 customers per month on average. Banking customers on the app, online banking and USSD now account for 57% of total active customers, up 21% to 10.8 million. Other banks average about two million.

Fourie said the company’s strong digital presence helps them communicate with their customers, and customers feel like the bank is in their pocket anytime, anywhere, anywhere.

Capitec also appointed 1,642 new employees over the past year, of which almost 330, or 20%, were recruited for critical positions in the field of technology and data, as part of the reinforcement of its digital bank.

It also saw a 27% increase (to 791 million) in digital transaction volumes over the past six months, grossing around R5.6 billion.

The insurance division, which sells creditor and funeral insurance policies, performed very well. The active funeral insurance portfolio has grown from 88,000 five years ago to two million. Active contracts are up 34% and Capitec has become the leader in this sector with 8.9 million lives covered.

Operating profit before tax and credit impairments rose 24% to R8.8 billion from R7.1 billion a year ago. Lending income increased by 13% to R8 billion and net income from life insurance and funeral plans increased by 64% to R1.5 billion.

Dismissal and death claims increased from R15.5 billion to R15.7 billion, reflecting lower numbers of laid-off customers and Covid-related claims. “It will be very interesting to see what happens with the cuts over the next two months, given the economy,” Fourie said.

The ratio of net transactions, net foreign exchange and funeral plan income to operating expenses improved from 98% in August 2021 to 108% for the current year.

Credit life net income increased 60% due to active business growth and a reduction in paid claims. Funeral plans revenue increased 72% due to growth in the active policy portfolio, growth in average premiums and lower claims.

Term loans were “fundamentally flat,” Fourie said, while credit card loans were up 11%. Access loans, over which the bank has better control, have risen from R9.287 billion to almost R20 billion.

“The good thing about easy access is that we can manage the risk. With term loans and credit card loans, if you extend that credit, you can’t do anything — the money is in [the customer’s] belly… But with the ease of access, we have the ability to reduce the duration or reduce the exposure to the client. It is a very good product in such a difficult time. We have backtracked where we see stress with particular clients.

The access facility is granted at an interest rate of 20%, compared to the National Credit Regulator’s short term credit rates of 25%, so the old facility is granted at a lower interest rate . If the client is current, they do not need to return to the branch to take out a loan, so the operating cost is much lower with this facility.

The up-to-date book has remained almost at par from one year to the next, while the up-to-date book with SICR (significant increase in credit risk but rescheduled) is at 75%. The book that did not improve is Stage 3 – two to three months behind – at around 14%, made worse by the Sibanye strike (around R100m), system problems in August (R100m additional rands) and an increase in debt review numbers.

The increase in interest rates does not affect the existing maturity book and has no impact on customers with existing credit. However, new loan applications are granted at a higher interest rate.

Asked about the decline in the share price, Fourie said business maverick“I look at the stock price over the long term and not the short term because there is so much emotion and market volatility involved in the stock price. We don’t look at the stock price. action – we look at the fundamentals, inputs, and foundations of the business. We believe it’s sound and we’re pretty comfortable with where we’re at. [Our] to concentrate [is] on the entry and the customer – the price of the action is the result.

To mitigate the impact of power outages, Fourie said Capitec had approved the deployment of lithium batteries in all of its 850 branches – an investment of R58 million.

“You cannot have branches that are not operational. This is the cost of load shedding. Everyone invests in solar energy, batteries or whatever. The economy is much more resilient than you think. We have all adapted to not having electricity. We become self-sufficient. » BM/DM

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