Weekly Roundup 2022-09-30

Weekly Roundup 2022-09-30

Lunar Capital Weekly Roundup

Index / Fund / Rate Start of Year Last week This Week % change YTD
JSE ALSI 73 723 66 584 63 726 -13.56%
NASDAQ Composite 15 833 11 448 10 576 -33.20%
S&P 500 4 797 3 873 3 586 -25.24%
Prime Lending Rate 7.25% 9.00% 9.75% 34.48%
Lunar BCI WW Flexible Fund 165.68 146.28 141.13 -14.82%
USD/ZAR 15.96 17.62 18.10 13.41%
EUR/ZAR 17.95 17.65 17.75 -1.11%
Brent Crude 77.86 91.53 85.29 9.54%

Source: iress

Company and Market News

A few weeks ago, we looked at FirstRand and compared their results to some of the other banks that it primarily competes with in South Africa. This week, we shall take a look at Capitec. Last week Capitec released their unaudited interim results for half-year ending 31 August 2022. Headline earnings increased by 17% to R4.7 billion for the interim. Capitec also increased the number of active clients by 13% to 19 million people with 10.8 million of their retail clients using their digital channels.

Capitec also boasted a healthy 25.49% return on equity for the trailing 12-months. For the interim period, Capitec declared a dividend of 1400 ZAC per a share. Compared to FirstRand, Capitec targets a completely different market. Capitec target the lower income groups and offer them loans at higher interest rates. These higher interest rates are charged to compensate for the higher risk taken by Capitec. For the current interim period Capitec had a credit loss ratio of 3.3%. This is 5.9 times higher than the credit loss ratio that FirstRand had. However, we can see that their return on equity is higher than FirstRand and the other banks in the table below.

Capitec customers, who have taken loans out with them, will be put under pressure in the current increasing interest-rate environment. Lower income groups are put under significantly more pressure than higher income groups in these environments. And there is a likely chance that Capitec’s already high credit loss ratio could increase further. Capitec is progressively attempting to reduce its loans to lower income groups, for example by stopping lending to the lowest tier, and acquiring Mercantile Bank to increase its foothold in the business segment of the market.

Company Return on Equity Credit Loss Ratio 12m Headline Earnings (ZAR’bn) PE at Friday 30 Sep 2022
Capitec 25.49% 3.30% 9.1 19.69
FirstRand 20.60% 0.56% 32.7 10.40
Standard Bank 11.30% 0.82% 27.7 8.36
ABSA 14.22% 0.91% 20.9 13.82
Nedbank 11.58% 0.85% 13.1 7.41

At these levels, the market expects Capitec to continue to outpace the other banks in earnings growth.

Disclosure: FirstRand is held in the Lunar BCI Worldwide Flexible Fund.

Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/

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The Lunar BCI Worldwide Flexible Fund Fact Sheet together with our Disclaimers can be read here.

A&EO.

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