Viceroy Research has taken aim at another South African company: Capitec Bank.
In a report published this morning, the firm alleges that the retail bank is a “wolf in sheep’s clothing”. “We believe that Capitec is a loan shark with massively understated defaults masquerading as a community microfinance provider,” it said, adding that the South African Reserve Bank and Minister of Finance should immediately place Capitec into curatorship.
“We strongly refute these allegations and are in the process of gathering information to respond to the claims made in the report with facts. We are committed to providing clear and transparent information that will show that these claims are baseless,” Capitec CEO Gerrie Fourie said in a statement.
According to Bloomberg TV, Capitec CFO Andre du Plessis labelled the report and its allegations as “totally unfounded”. He said it demonstrated a total lack of understanding of the bank’s activities.
The bank has since issued a Sens statement, in which it confirmed that it received a copy of the report at 10am this morning. It dismissed the report, stating that it had not been approached by Viceroy prior to publication. “We believe our corporate governance is strong and our communications and disclosures are, and always have been, transparent, clear and to the point. On the face of it, the report is filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information”. It also committed to providing a detailed response later today.
We have taken note of the Viceroy report on Capitec Bank. We are currently in the process of investigating the report in detail and will respond appropriately.
— Capitec Bank (@CapitecBankSA) January 30, 2018
Viceroy head Fraser Perring told Moneyweb@Midday’s Warren Thompson that it did not engage with Capitec management as all the information cited is publicly available and based on management’s engagement with investors. Listen to the full interview below:
Shares in Capitec and PSG Group, which holds a 30.7% stake in Capitec per the bank’s latest annual report, have plunged following the release of the report. The Banks Index is also under pressure.
In an interview with Bloomberg TV, Perring acknowledged that Viceroy has a short position on the stock. “In essence, we consider Capitec to be uninvestable. We have taken a long-term short position.” He later told Moneyweb@Midday that its short position on the share means that it has a duty to publish “factual and correct” information.
Viceroy alleges Capitec is fabricating new loans and collections or re-financing R2.5 to R3 billion in principal per year by issuing new loans to defaulting clients. “As a consequence of re-financing delinquent loans, Viceroy believes Capitec’s loan book is massively overstated. Viceroy’s analysis against competitors suggests an impairment/write-off impact of R11 billion will more accurately represent the delinquencies and risk in Capitec’s portfolio.”
Capitec is considered a darling of the domestic banking sector, a result of its earnings growth and rapid growth in market share, with more than 100 000 clients joining the bank each month. Moneyweb previously reported that Capitec outperformed its larger listed rivals during the latest interim period. The bank grew interim headline earnings by 17% to R2.05 billion, compared with Standard Bank‘s 12% increase to R12.11 billion and Barclays Africa’s 7% increase to R7.77 billion. Nedbank’s headline earnings decreased by 2.9% to R5.3 billion owing to losses at its pan-African unit Ecobank Transnational. FirstRand reported a 6% increase in headline earnings to R23.76 billion for its financial year ended June 30 2017.
Viceroy’s three-man team gained prominence after publishing a damning report on Steinhoff, shortly after the retailer announced accounting irregularities, which sent its shares into free fall in December 2017. Perring told Moneyweb@Midday that its investigation into Steinhoff led it to Capitec, due to the interrelated party selling of loans, and the wider unsecured lending market in South Africa.
Prior to the publication of the Capitec report, a tweet by Viceroy stating that it was investigating another South African firm, caused anxiety in the local market. Shares in Aspen and the Resilient stable of companies, rumoured to have been potential targets of the report, were negatively impacted.