Capitec full year results: Riaan Stassen - CEO, Capitec
ALEC HOGG: Capitec has been one of the best performers on the JSE over pretty much any period that you’d like. But there have been murmurs recently that the bank’s core business in unsecured lending could be a bubble that’s waiting to pop. During our interview today on the latest year’s financial results – the 12 months to end-February – I asked Capitec’s chief executive Riaan Stassen for his view on this.
RIAAN STASSEN: Ja, I think quite an important monitor for us, Alec, is the available cash to the customer, and that is the difference between the net paid and the total amount you use to service debt. That percentage since 2007 has actually improved. In particular over the last six months we’ve seen a continued improvement in that. And that obviously is the earliest warning sign of a possible deterioration. That’s the reason why I say I don’t share the fear that there’s a credit bubble looming. I believe that there is a sound reason and, frankly, a very important reason why unsecured lending should increase in South Africa - because that’s a very important underpin for the process of transformation as a result of the previous both political and credit dispensation that led to most South Africans funding long-term assets, their homes and their cars, with either savings or short-term credit, which is not healthy. ...
ALEC HOGG: Riaan, the big question when one looks at Capitec is: are the shares now overpriced? You’ve been able to justify the high rating that you’ve had over the years, but at this point it certainly is looking a price-to-earnings over 20 still, going into the future.
RIAAN STASSEN: Well, Alec, there are two things that I look at. What the potential is; we’re still a very small player, and I think there is a significant potential for us to increase especially our transaction fee income. There is a marked change in behaviour of our customer base to better utilise the facilities available to them. So if you look at the 57% increase in our transaction fee income in the past year, that was without a price increase, so that was real increased…
ALEC HOGG: This is volume growth?
RIAAN STASSEN: That’s volume growth.
ALEC HOGG: Your competitors are getting all hot under the collar about that as well, I’m sure you’ve noticed in the weekend press there was an unprecedented number of adverts from Standard Bank, First National and Absa. Is that not concerning you - that they’re also latching on to this?
RIAAN STASSEN: Well, we’ve got a fundamentally different approach to the market than our competitors. Obviously we watch very closely what they do, but our main focus is on our customer and what we think our customers wants, what our customers tell us. And I’m pretty confident that we can sustain the growth in terms of customer numbers, in terms of the utilisation of our facilities. The second thing that I think is quite important, to me quite a highlight, this is now the fourth year in a row of our headline earnings increase between 40% and 50%. So, given that, I think if we do what we need to do that there’s no reason for us to sustain a high level of growth going forward.
ALEC HOGG: Interesting talk, Dave, the reaction to that credit bubble. He doesn’t think that there is one, and he still thinks the company’s profits can keep rolling at 40 to 50% a year.
DAVID SHAPIRO: The big thing is to control costs, which they did very well this year. Also he kept impairment charges down, or the trend is down. I think that’s the answer. They can grow, but that’s what they have to watch out for.
ALEC HOGG: If you are a Capitec shareholder, the company is serving you well. You probably bought in a lot cheaper than the price at the moment. Just ride with it.
DAVID SHAPIRO: They are paying out dividends as well.
ALEC HOGG: Good dividend – R3/share.
DAVID SHAPIRO: Sure. So you’ve got a 2% dividend yield. That's lower than you’d like, but still they are ploughing back a lot of money.
ALEC HOGG: Well, imagine if you’d bought 10 years ago – you would have paid about R1/share at that point in time. You got a nice dividend today, you’ve got three times your money with today’s dividend declaration – it was a final declaration of R3, made R4.25 for the year – so you'd be getting a wonderful return.
DAVID SHAPIRO: I agree. Let’s see. You don’t have to rush out yet. When the growth rate starts to fall, then we can start talking about getting out of the shares.
ALEC HOGG: If you are a long-term investor, just reap the rewards. If you are looking for a stock to put into your portfolio now for the next 10 years, you could get better elsewhere.
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And the term ‘golden years’ banned.