Capitec posted strong results for the six months to August 2021.
All the measurements applicable to a bank showed a remarkable recovery from a year ago, while shareholders should be very happy that the numbers they care about were recovering even faster.
CEO Gerrie Fourie actually let slip in an online presentation of the results that client growth and the acceptance of the Capitec brand is “scary”.
Operating profit before tax increased by nearly 840% in the first six months of the financial year, to more than R5 billion from R538 million in the (pandemic-affected) six months to August 2020.
Headline earnings per share increased by 513% to R34.47 and basic earnings per share by the same percentage.
Capitec declared an interim dividend of R12, with Fourie announcing the good news that shareholders can look forward to larger dividends in future as the board has voted to increase the dividend payout ratio from the current 40% to 50%.
More important than the recovery of the more than 500% increase in earnings is that Capitec was still able to grow its fundamental business throughout the pandemic, with Fourie noting that it continued to attract new clients.
“We gained six million active clients in four years,” he says.
“It is exceptional that our client base has increased by 32% since August 2019, representing growth of around 16% per annum over the last two years.”
The number of active clients increased to 16.8 million at the end of August 2021 compared to 10.5 million in August 2018.
The growth in client numbers translated into growth in transaction volumes, growth in product use, and the recovery in earnings.
Fourie noted that the number of transactions recovered to 750 million during the last six months, compared to 500 million a year ago and 600 million in the six months to August 2019.
This growth is mainly attributable to the increase in the utilisation of digital channels. While Capitec focused on digital and self-service channels before the Covid-19 pandemic, these became even more important during the last 18 months.
“Clients using digital channels increased by 22% to 8.8 million. More than six million clients use the Capitec app,” says Fourie.
“We logged 843 million logins on our app and other digital channels and processed 623 million transaction.”
He says the difference in the number of clients logging in and the number of transactions is that Capitec counts a transaction only if it earns a fee.
“Checking your balance is free, and does not count as a transaction,” says Fourie.
He adds that the success of Capitec’s digital offering – and the bank overall – is its simple, affordable and transparent fee structure.
One of the slides in his presentation contained three lines about the fee structure as a foot note. “That’s our fees,” noted Fourie, “there is nothing more.”
The increase in transaction volumes led to a recovery/growth of 33% in net transaction income to R5.2 billion.
“We are at the point where transaction income is just as important as interest income and covering nearly all our operating expenses,” says Fourie.
Capitec also noted that its deposit book has shown good growth.
Total deposits increased by 16% to R127.9 billion, approximately 10% of SA’s household deposits. Once again, Capitec achieved growth during the pandemic with total deposits growing steadily and the bank winning market share.
Advances increased more slowly due to changes over the years aimed at improving its lending book. The gross loan book increased by only 5% to R78 billion.
The change in the strategy shows. After arrears and the need to reschedule repayments spiked during the Covid-19 pandemic, they are back to normal levels.
Fourie believes there are still ample opportunities for Capitec to grow.
His response to a question whether Capitec can continue to grow and keep investors happy, given its high rating on the JSE: “There are still opportunities to gain market share.”
Luister na Tinus de Jager se onderhoud met Capitec uitvoerende hoof Gerrie Fourie:
The new improved figures put Capitec on a price-earnings (PE) ratio of nearly 27 times at the current share price of R1 825.
The PE is around two – nearly three – times that of other major retail banks in normal circumstances.
Can Capitec continue to deliver on these expectations?
“We never discuss the share price or market capitalisation in meetings,” he says, adding that the bank believes there are still lots of opportunities to grow – including the possibility of offering new products to clients, and the acquisition and integration of Mercantile Bank to offer business banking services.