- At the close of 2021 Capitec Bank boasted a market capitalization of ZAR 220 billion (US$ 13.82 billion)
- Capitec is a spectacular outlier with its share price rising an astounding 183.75% in 2021
- Capitec shares have grown in value by 150,385.61%
Capitec Bank is a special company by any definition of the word and by any stretch of the imagination.
At the close of 2021 it boasted a market capitalization of ZAR 220 billion /US$ 13.82 billion) which is roughly the same and marginally larger than that of Africa’s largest lender by assets, the Standard Bank Group!
This feat borders on blasphemy. That a company that is barely 25 years old could rival and eclipse in terms of market value a financial juggernaut that has a presence and footprint in nearly every country in Africa and has been doing business for over 150 years!
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The early days…
Capitec from its inception in 2000 has made its driving ambition to shake up the banking industry. It has successfully done so. When the common person imagines a bank, the first thing that comes to their mind is never too far from an ivory tower that has obnoxious people working in it who seem to take pleasure in making their clients feel small.
Excuse the harsh description, it is, however, a truthful characterization of the experiences most people tend to have with their bankers unless, of course, they are already significantly rich…
One does not get that sense looking at Capitec. The banking company continues to thrive in an industry characterized by large, overweight and, inefficient players generally. Looking back at the share prices of South Africa’s big five over the last 5 years tells a very interesting story:
Capitec is a spectacular outlier with its share price rising an astounding 183.75% in 2021. It achieved this during a time when its peers either made marginal gains or lost value. Nedbank shares over the period covered lost 11.23% and ABSA group has lost 13.78%. Shares of the Standard Bank Group have gained 11.56% whereas First Rand Limited which operated FNB gained a marginal 0.86%.
If an investor were to look further back at the share price trajectory of Capitec from the bank’s inception, the rate of growth is mind-numbing.
Capitec shares have grown in value by 150,385.61%! To put this in perspective, if the company paid no dividends from the time it began its operations to date a person who would have bought ZAR 10,000.00 (US$ 628) worth of shares in Capitec in 2001 would have seen his or her investment grow to approximately ZAR 15 million or roughly US$ 1 million. Capitec has not run out of steam and it still presents a strong investment case for investors going into 2022.
How did Capitec accomplish this being a mere upstart compared to its peers?
To appreciate what has made Capitec so valuable, an overview of the South African banking sector is necessary.
|Code||Short Name||Full Name||Market Cap ZAR Billion||Market Cap USD Billion|
|FSR||FIRSTRAND||FirstRand Ltd.||ZAR 329.61||$ 20.60|
|CPI||CAPITEC||Capitec Bank Holdings Ltd.||ZAR 220.81||$ 13.80|
|SBK||STANBANK||Standard Bank Group Ltd.||ZAR 218.87||$ 13.68|
|ABG||ABSA||Absa Group Ltd.||ZAR 128.41||$ 8.03|
|NED||NEDBANK||Nedbank Group Ltd.||ZAR 87.53||$ 5.47|
|INP||INVPLC||Investec plc||ZAR 57.28||$ 3.58|
|INL||INVLTD||Investec Ltd.||ZAR 26.75||$ 1.67|
|FGL||FINBOND||Finbond Group Ltd.||ZAR 0.88||$ 0.06|
|Combined Market Cap||ZAR 1,070.14||$ 66.88|
The JSE Listed Banking Stocks
How Capitec stacks up against its peers on the JSE
The listed banking sector of the JSE is worth a combined ZAR 1 trillion or US$ 67 billion. The largest bank in South Africa by market capitalization is First Rand Limited which commands a market value of ZAR 329.6 billion (US$ 20 billion). It is followed by Capitec with a market value of ZAR 220 billion. Capitec is followed by the Standard Bank Group at ZAR 218 billion.
What makes Capitec unique in relations to its peers is that many if not all the listed banks have gained critical mass in terms of size and scale from combining their retail or consumer businesses with their corporate and investment banking operations. Indeed, many of the listed banks have thrived on the universal banking model for prolonged periods of time.
A universal bank is one where banks provide a wide variety of comprehensive financial services, including those tailored to retail, commercial, and investment services. Universal banking is common in some European countries, including Switzerland.
This is especially true for banks like Standard Bank whose earnings in 2020 and 2021 were driven primarily by its corporate & investment banking business or CIB. Banks on the JSE have always buttered their bread from dealing with corporate clients. Capitec in contrast has until recently been purely a retail or consumer bank. Its success in creating value for its shareholders busts the long-standing myth that for a bank to make money it needs a strong corporate and investment banking (CIB) franchise.
Breaking new ground!
Capitec has proven contrary to be true. A bank can focus on the shunned consumer client segment and make money spectacularly. The bank has only recently rolled out a business client service through its acquisition of Mercantile Bank in 2021.
Capitec discovered much earlier something which the rest of the banking sector is only waking up to now. Digitization and fortune are at the bottom of the pyramid. Capitec’s success in consumer banking has spawned legions of imitators.
The bank has 16 million clients (about the size of the population of Zimbabwe), more than half of which bank digitally. The bank has more than 800 branches spread out through South Africa. Capitec can now claim to be the bona fide largest banking company in South Africa. The bank has accomplished this once again in an area long held to be difficult area to operate, consumer banking. This area of banking is difficult because customers generally do not switch banks. It has been humorously said that in some countries people change spouses more than they change banks.Capitec was founded in 2000 in a sector fiercely competed for and dominated by what was then the big four banks, Standard Bank, Nedbank, FNB and ABSA. Capitec did not begin its business in the glitzy or cosmopolitan and urban areas. It deliberately targeted the rural and peri-urban areas with its services. It was aggressive in rolling out its branch network so that by 2007 it had 1 million customers. In a manner that can only be described as impressive and is testament to the caliber of management running things at Capitec, the bank has managed to keep up its profits as it grew. In many cases when businesses grow too rapidly this often results in operational and financial challenges. Capitec broke even in 2002 and has consistently grown profits ever since.How is that for resilience and innovation!
Lafferty Group, a research and advisory services company ranked Capitec the best bank in the world in 2016, an accomplishment it repeated in 2017. The bank’s customers are reported to be some of the most satisfied in the country by independently conducted surveys. This has been the case for the last 5 years.
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The secret sauce of Capitec’s success is its strategy which includes clarity about its market positioning, internal operations, and organizational culture. Additionally, three other factors explain the sustained success of Capitec Bank Holdings.
The founder and former chief executive of Capitec, Riaan Stassen has always believed that the greatest strength of the company has been its focus. Until recently when the bank got into the business and commercial clients segment its client base was comprised exclusively of individuals and not companies or trusts. Its client base was strictly individuals.
The bank offers uniform products right across the board from the ATM cards it issues to the types of accounts it has on offer. The accounts offered by Capitec serve 3 purposes namely, savings, loans and, transactions. This ruthless and single-minded focus has paid off. Very few companies can corner the mass markets they serve the way that Capitec has to the extent that it has garnered awards in successive years including the world’s best bank for two years in a row. In stead of being all things to all people, Capitec remained focused on consumer banking. This focus has kept costly complexity out of its operations.
Capitec did not speedily evolve into a universal bank or expand the scope of the products and services it has on offer. The company has due to the entrepreneurial nature of its culture has always had a knack for identifying valuable opportunities in areas that were shunned by the mainstream banks. It has developed evolved and improved its business gradually. The bank began in the rural areas offering credit to clients who would prior to Capitec coming to existence would borrow from loan sharks. As this business grew the company began to offer ancillary services like credit cards and funeral insurance. After it dominated the rural areas the company then moved to the cities.
Breaking old habits
Capitec has brought new paradigms to the stodgy banking industry. Disruption cannot have a better definition than the way Capitec conducts its operations. One of the ways Capitec has disrupted and upended the rest of the sector is in the daily hours of operation. Banks traditionally close shop at 1530 hours. Capitec closes its branches at 1800 hours and in some cases even 2000 hours and opens on Sundays to accommodate the needs of working customers who are only free to do their banking on the weekend.
In terms of fees, Capitec charges a flat fee for transactions as opposes to the variable rates that the rest of the banking sector charges. Customer experiences are different with Capitec in comparison with other banks. For starters Capitec does not have typical banking halls. There are no queues in their branches in stead there are seating areas for clients. Also, instead of the typical partitioning of glass between teller and client found in most if not all banks. At Capitec it is not unheard of to see a client and their attendant sharing the screen of a computer. The client experience at Capitec is also reinforced by its recruitment and talent acquisition process. The bank made a deliberate decision not recruit talent from other banks but recruited instead from retailers.
By inculcating new practices and breaking with the old order, Capitec has turned consumer banking on its head!