Capitec lifted headline earnings per share by 36% to R6.4 billion in the six months to August 31 as the leading retail bank in the country in terms of customer numbers continued to draw new business from its digital, product diversification and client centric solutions.
The digital bank, now with 23 million customers, saw net transaction and commission income increase 19% to R6.9bn in an economy that barely grew. Value-added services and Capitec Connect revenue grew by a strong 79% to R2bn. Return on shareholder equity increased to 29% from 24% at the same time a year ago. The interim dividend was raised 36% to R20.85.
Old Mutual Wealth Private Client research analyst, Tasneem Samodien, said personal banking led the way for Capitec, with strong headline earnings growth (48%) driven by lower credit impairments and increased value-added services income.
Business Banking, however, reported a 12% decline in headline earnings as the group continued to invest and compete for market share. Capitec's management was focused on returning to the long-term return on equity target of 25%.
“Our long-term investment case is predicated on Capitec continuing to leverage their digital platform to drive penetration of existing and new products into their large client base as well as to new clients,” said Samodien.
“We believe Capitec's digital-led offering has the potential to capture meaningful market share, both in South Africa and internationally, and drive earnings growth into the future.
“Pairing the bank's growth opportunities with management's track record, an existing efficient operational base and leading digital platform, we believe Capitec can continue to grow earnings at rates above peers, and remain deserving of their premium in the market.”
CEO Gerrie Fourie said they had continued to invest significantly since 2020, despite the tough economy, and had developed solutions that met the needs of clients.
Political stability, including positive sentiment about the Government of National Unity, normalised inflation and reduced interest rates had set the scene for future growth.
Fourie said in an online interview that the first half earnings growth was off an unusually lower base due to higher impairments last year and the tightening on lending, and he anticipated earnings growth of between 20% and 22% for the full year, with return on equity also likely to fall slightly.
He said the interim growth this year was driven by strong performance across multiple business segments, particularly in digital banking and transaction income.
Active banking app clients increased by 21% to 12.4 million, now 54% of the total 23 million clients, underscoring success in digital transformation.
Digital and card payment volumes increased by 24%, now representing 89% of total transaction volume, with the banking app seeing a 30% increase in transaction volumes, accounting for 88% of all digital transactions.
“These figures represent millions of South Africans who are embracing digital financial solutions that make their lives easier and access to finance more affordable. We’re successfully transforming how people bank,” said Fourie.
Capitec's value-added services (VAS) net income surged by 73% to R2bn, with the number of clients using send cash, bill payments, prepaid, vehicle licence renewal, and buying retail or Showmax vouchers growing 16% to 10.7 million. The bank sold 132 million vouchers in the period and increased the average transaction value.
Capitec Connect, the bank’s MVNO (mobile virtual network operator), introduced new bundles and grew active sims to 1.2 million at the end of August 2023. Data usage increased to over 5 petabytes (over 5 million gigabytes), resulting in a net income contribution of R69m, up from only R4m at the same time last year.
“We’re seeing strong adoption of our new payment channels, Capitec Connect, and value-added services, which are improving the client experience and providing us with data to enhance our offerings even further,” said Fourie.
Capitec's insurance business increased its net funeral insurance result by 14% to R727m, contributing 11% to group headline earnings. The funeral book grew 20% to 3 million active policies.
Life cover solutions were launched in June 2023. By August 31, 38 526 active policies had been accumulated, with a sum assured of R22bn, contributing R8m to the insurance result.
Capitec Business headline earnings fell 12% to R214m, largely due to decisions including deliberate fee reductions and changes to the merchant e-commerce strategy. There was however strong growth in its client base, with active clients increasing by 30% and active merchants growing by 31%.
“Our business banking strategy is focused on long-term growth and market expansion. By aligning our fees with retail banking and adjusting merchant services pricing, we're positioning ourselves to serve SMEs and tap into the underbanked emerging market,” said Fourie.
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