ARTICLES

Capitec Revisited

Our first article on Capitec was published on Monday 19^th February 2018. At the time the share was trading for R820.94 and we pointed out that it had established a support level at around R800. We suggested then that this was a share well worth accumulating on weakness as a long-term investment. On Friday last week the share closed at R3080.

Since it listed on the JSE in February 2002 at about R1 this has been a remarkable investment – probably the best long-term investment that a private investor could have made over the past 22 years. Consider the chart:

As you can see, Capitec is the quintessential diagonal share, going from the bottom left-hand corner of your screen to the top right-hand corner. On the chart you can see the impact of the sub-prime crisis of 2008 and COVID-19 in 2020.

On Monday 18^th March 2002, a month after it listed on the JSE, you could have bought Capitec shares for just 80c. In the 2024 year alone the company has declared dividends totalling R48.75 – what an incredible return on investment!

On Tuesday last week it published its results for the six months to 31^st August 2024 showing headline earnings per share (HEPS) were up 36% from the previous year – a remarkable achievement off such a high base.

The company had an active client base of 23,2m – which means that it had almost doubled the size of its client base in the last 5 years. It is now by far the largest bank in South Africa by clients. By market capitalisation it dwarfs both ABSA and Nedbank and is just 22% smaller than Firstrand and 10% smaller than Standard Bank.

Capitec is expanding both its client base and the range of banking products it offers. In September 2022 the company launched Capitec Connect offering voice and data bundles to existing clients at competitive rates. The insurance business which began with funeral and credit life policies now has 38500 active policies. The Business Bank acquired in November 2019 is now opening 11 000 small and medium size company accounts every month. Altogether, value added services increased their contribution to after-tax earnings by R608m in the six months to 31^st August 2024.

Capitec has a very well developed and sophisticated IT system which enables the company to refine its credit risk management through artificial intelligence (AI) and data mining. This has resulted in improved credit management and significantly reduced risk. The credit loss ratio has improved from 9,6% to 7,0%.

This share continues to offer excellent value. In our view it will soon be the largest bank in South Africa as it expands its offering into all areas of banking and related services and as its enormous client base continue to grow. It should benefit directly from the improved economic conditions that are likely to follow from the end of loadshedding, the appointment of the new government of national unity (GNU) and the downward trend of interest rates.

We added Capitec to the Winning Shares List (WSL) almost a year ago on 4^th November 2023 at a price of R1855. It has since risen to R3080 – a gain of 72,3%. We believe that it will continue to perform and should be accumulated by private investors on any weakness.

DISCLAIMER

All information and data contained within the PDSnet Articles is for informational purposes only. PDSnet makes no representations as to the accuracy, completeness, suitability, or validity, of any information, and shall not be liable for any errors, omissions, or any losses, injuries, or damages arising from its display or use. Information in the PDSnet Articles are based on the author’s opinion and experience and should not be considered professional financial investment advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional. Thoughts and opinions will also change from time to time as more information is accumulated. PDSnet reserves the right to delete any comment or opinion for any reason.

PDSNET ARTICLES

Smart Local Investors

The last two months have been wild on the markets – mainly because of Trump’s ill-advised, on-again, off-again tariff policies. The issue now is:

Will this morph into a full-blown bear trend? Or is this correction almost over?

From his election victory on the 6^th of November 2024,

Jerome Powell

The Federal Reserve Bank (“the Fed”) is completely outside the control of the President and Executive Branch of the US government. The chairman of the Fed is appointed for a renewable 4-year term by the President. The President cannot remove the Chair without cause. The current chairman, Jerome Powell was appointed by Trump during his first term as President and reappointed by

Uncertainty Soars

Investors are by their very nature risk takers, but they are always trying to reduce the risk which they have to take to a minimum. Donald Trump, with his threat of an international trade war and his on-again, off-again tariffs has significantly increased the level of risk in markets across the world. This can be seen in the extraordinary volatility in the S&P500

Liberation Day

Trump has done the unthinkable. He has deliberately engineered the collapse of the US and world stock markets in the nonsensical belief that somehow an international trade war will make Americans richer. Nothing could be further from the truth. His actions have taken the S&P down from its all-time record high of 6144.15 on 19^th February 2025 to Friday’s

The Creation of Money

The money supply of a country is a symbol of the goods and services of that country. Obviously, if the size of the money supply is increased more rapidly than the real growth of its economy, then you have more money chasing the same goods and services, resulting in rising prices. Since, over the long term, the only organisation that can create money is the government,

V-Bottom is likely

The 10% collapse of Wall Street, which is a direct result of Trump’s random policy of on-again, off-again tariffs, is very similar to what happened to Wall Street in February/March 2020 when investors tried desperately to accurately discount the impact of the COVID-19 pandemic.

Normally, corrections in the market

The Trump Correction

It is relatively unusual for the activities of American presidents or what they say to have an impact on the New York Stock Exchange, especially during their first 100 days in office. Trump, however, is the exception. His confused, on-again, off-again rulings on tariffs have rattled the market. Markets hate uncertainty and even Trump himself doesn’t appear to know exactly

Dividends

Investors know that the return on a share is made up of a capital gain plus the dividend. Private investors are mostly attracted to the prospect of making a capital gain on the shares which they buy and do not often consider the dividends. What they perhaps do not realise is that a capital gain is actually just the dividend in a different form.

Quarterlies

One of the major differences between the US equity markets and the JSE is that listed companies in America are required to report every 3 months, not every 6 months as they are on the JSE. The quarterly reports of the S&P500 companies are closely followed by investment analysts and predictions are made for their profits.

Gold's Record Run

On Friday last week, gold reached a new all-time record high of $2871.42 per ounce. Its gain in rands has been even more impressive rising from less than R1000 per ounce in August 1992 to last Friday’s close of R52864.85.

In our Confidential Report of March