Our opinion on the current state of

Capitec Bank Holdings Limited (CPI), with its roots in PSG, has dramatically transformed the South African banking landscape, establishing itself as the largest bank in the country by customer numbers, with over 21.1 million clients. Its innovative approach to banking, characterized by affordable and accessible services, particularly for the previously unbanked segments of the population, has enabled it to consistently capture market share from traditional banking institutions. The introduction of around 90,000 funeral policies each month further underscores Capitec's expansion into diverse financial products and its deepening engagement with its client base.

The decision by PSG to unbundle its holding of Capitec shares, aimed at unlocking shareholder value, marks a significant milestone in Capitec's journey, emphasizing its independence and growth potential. Despite Capitec's vast client base primarily residing in the lower living standards measure (LSM) levels and holding less than 10% of the retail deposit base, its remarkable average annual growth in headline earnings per share (HEPS) of 32.2% over the past 19 years since 2003 stands as a testament to its exceptional performance and strategic execution.

The bank's initiative to conduct a Broad-Based Black Economic Empowerment (BBBEE) transaction by allocating approximately R1 billion worth of shares to long-serving staff illustrates its commitment to inclusivity and empowerment, despite the temporary dilutive impact on its share price. For the six-month period ending 31st August 2023, Capitec reported a 17% increase in net interest income and a 9% rise in HEPS, driven by its continuous investment in innovation and an 11% growth in the number of active clients, leading to an 18% surge in retail transaction volumes.

Looking ahead to the financial year ending 29th February 2024, Capitec anticipates a HEPS increase of between 14% and 16%, highlighting the bank's robust performance, particularly in net transaction and commission income, propelled by the digital engagement of its expanding client base.

Despite trading at a price-to-earnings (P:E) multiple of 24.85, significantly above the JSE Overall index and other leading banks, Capitec's value proposition remains compelling. Its proven track record of growth, innovation, and market penetration, combined with strong financial performance and strategic initiatives, positions Capitec as a valuable addition to any private investor's portfolio. The recommendation to accumulate shares on weakness reflects confidence in Capitec's continued growth trajectory and its role as a major disruptor and innovator within the South African banking sector.