;

Capitec

20 December 2021 By PDSNET

Capitec has been, arguably, one of the best investments on the JSE over the past 20 years. It was launched by PSG and listed on the stock exchange in February 2002. Since then, it has become a disruptive powerhouse in the banking industry, consistently taking market share away from the four big banks in South Africa. By market capitalisation it is now more than double the size of Nedbank, 83% larger than ABSA, 6.3% bigger than Standard Bank and 69% of the size of FNB. And it is still growing rapidly. Consider the chart:

Capitec (CPI): February 2002 - December 2021. Chart by ShareFriend Pro

This chart is a semi-logarithmic chart showing the closing price of Capitec from its listing in February 2002. You will immediately see that the chart is what we call a “diagonal” because it goes from the bottom left-hand corner of your screen to the top right-hand corner. On 15th March 2002 you could have bought the share for just 90c. On Friday last week it touched an intraday record high of just over R2000 per share.

We have been urging you to invest in Capitec shares since February 2018 just after the Viceroy Report came out when it was about R820 per share. We drew your attention to the fact that its price:earnings growth ratio (PEG) which was then 0,63 clearly showed that it was cheap. Read the article here

The PEG ratio compares a company’s earnings track record with its current price earnings ratio (PE) to determine whether it represents good value at the current price. It achieves this by dividing the company’s P:E ratio by the average percentage growth in headline earnings over a long period of time. In the following diagram we compare the percentage growth in headline earnings per share (HEPS) from Capitec with that of FNB over the past 18 years:

CAPITEC   %   FNB %
Year HEPS Growth   HEPS Growth
           
2003 46     92.5  
2004 70 52.17   111 20.00
2005 101 44.29   129.2 16.40
2006 165 63.37   157.8 22.14
2007 222 34.55   210.2 33.21
2008 259 16.67   191.5 -8.90
2009 366 41.31   133.3 -30.39
2010 527 43.99   180.1 35.11
2011 757 43.64   183.1 1.67
2012 1125 48.61   231.5 26.43
2013 1519 35.02   279.6 20.78
2014 1752 15.34   340.4 21.75
2015 2209 26.08   381.4 12.04
2016 2787 26.17   399.2 4.67
2017 3281 17.73   423.7 6.14
2018 3858 17.59   472.7 11.56
2019 4577 18.64   497.2 5.18
2020 5428 18.59   308.9 -37.87
2021 3966 -26.93   480.5 55.55
           
           
Average   29.82     11.97
P:E   29.18     12.41
           
PEG =   0.97844     1.036764


This diagram shows that Capitec’s average growth in earnings over the 18 years back to 2003 has been 29,82% while FNB has managed only 11,97%. So, even though Capitec is trading on a much higher P:E (29,18) compared with FNB (12,41) it has a lower PEG ratio – which means that it remains better value, even at this high P:E.

On Wednesday last week (15th December 2021), Capitec published a trading statement in which it estimated that its HEPS will increase to at least 6940c in the year to end-February 2022. If we incorporate this number into our analysis, then Capitec’s average growth in HEPS over the 19 years is 32,2% and it is trading on a PEG of 0.9062 – making it even better value at the current price of 199940c.


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.



Share this article:

PDSNET ARTICLES

The Rand 2022

It is that time of year when various experts feel it incumbent on themselves to make predictions – especially for the progress of the rand during 2022. Of course, the strength of the rand is a vital component of any private investor’s analysis because so many of our shares have significant interests overseas or are engaged in exporting.

Aveng Opportunity

Over the past few years, we have consistently recommended Aveng (AEG) as an opportunity. Those who have followed our advice have more than doubled their money.

By the start of 2022, the company had substantially reduced its debt and completed a 500-for-1 consolidation. These two events have returned the share from being a marginal penny

Portfolio Structure

Private investors often accumulate a portfolio over a number of years, as and when they have surplus capital available. Typically, they do not give much thought about how that portfolio should be structured to maximize return and minimize risk.

To begin it is important to think about how many shares you want to have in your

Clicks

In our company investment club (which we introduced you to in our article on 14th December 2020) we showed that we had 46 Clicks (CLS) shares for which we had paid an average of R228.17. Subsequently we bought a further 41 Clicks shares on 3 of May 2021, at a cost of 245.61. This transaction brought our average cost up

Aveng Consolidation

With the destruction of the South African construction sector following the 2010 Soccer World Cup, the Aveng share price collapsed from around R75 in August 2008 to as little as 1c following its two 1,5c rights issues in 2021. The company is now left with two profitable companies:

  1. Moolmans, a construction

Dividends

Three weeks ago, on 15th November 2021, we published an article about Grand Parade (GPL) in which we drew attention to the fact that it had broken up through its long-term downward trendline and was now in a new upward trend. We suggested that this made it worthy of your attention as a private investor. What we did

The Confidential Report - December 2021

America

The US economy is still booming. Weekly jobless claims, for the week ended 20 November 2021, fell 71 000, while consumer spending jumped 1,3% in October month alone. Third quarter gross domestic product (GDP) came in at 2,1% - hammered by supply constraints, but above analysts’ expectations. Unemployment has fallen to 4,6% and

Transaction Capitals Trendline

In last week’s article on Grand Parade, we drew your attention to the importance and usefulness of downward trendlines (drawn above a downward trend) in establishing the best point to buy a share. This week we draw your attention to the benefit of upward trendlines (drawn below a rising trend) as a method of determining when a share, with a strong rising trend, has corrected

Grand Parade Trendlines

Technical analysis, which is the search for and analysis of patterns in share price charts, can become very complex and mathematical. Literally thousands of line indicators have been developed which claim to improve the investor’s probability of being right when determining the moment when a share’s price turns. In our experience, the

Private Investor Advantage

Finding winning shares is not just about looking for quality. It is about finding quality when it is cheap – which usually means finding it when it has fallen heavily and is out of favour with institutional fund managers. We advise you to look for the “mountain behind you” in the chart.

As a private investor