Release Date: October 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Capitec Bank Holdings Ltd (CKHGY, Financial) reported a 36% growth in earnings, showcasing strong financial performance.
- The company has significantly expanded its client base from 12.6 million in 2019 to 23 million in 2024.
- Capitec Bank Holdings Ltd (CKHGY) has diversified its product offerings, including new payment solutions, business banking, and insurance services.
- The bank has invested heavily in technology, including AWS, Amazon Connect, Salesforce, and SAP, to enhance operational efficiency and customer service.
- The company has seen a substantial increase in digital adoption, with 12.4 million clients actively using its banking app.
Negative Points
- Operating expenses have increased by 24%, partly due to share appreciation rights and the hiring of additional staff.
- Credit impairments remain a concern, although they have decreased by ZAR1 billion from the previous year.
- The company faces challenges in optimizing its return on equity, which is currently at 29%, above the target of 25%.
- There is a need to further reduce cash transactions, which still constitute 11% of all transactions.
- The integration of AvaFin and its impact on overall financial performance remains uncertain, with potential pricing and funding challenges ahead.
Q & A Highlights
Q: Jacob Martin asks around AvaFin, it represents 9% of net interest income after credit impairments. This is only for four months. Would it be reasonable to imply that for a full 12-month period next year AvaFin to represent more than a third of net interest income after credit impairments for the group?
A: Gerhardus Fourie, CEO: I'll probably say it will stay at about around 1%. You can add 1 month because remember, you had all other businesses over 6 months, this is 5. And then what is very important going forward, I'm talking going forward, what are we going to do with pricing because we believe that pricing is too high and what do we do with funding. And that's going to have an effect on that contribution, but definitely not a third.
Q: Charles Russell of SBG asks: Why is the forward macro increased by over ZAR0.5 billion when all the macro indicators seem to be improving? And secondly, why is the coverage of loans strengthening when the macro is improving?
A: Grant Hardy, CFO: If you look at our access facility model, it was always built on what we call through-the-cycle, which uses a lot of historical data. The term loan model was built on what we call point in time, 12 months historical data, and we've now moved that to a through-the-cycle model where we look at much more historical data. So effectively, what happens is given that we've had, let's say, a 12-month bad history that through-the-cycle provision, base provision is lower, but that just transfers into the forward looking. So the provision stays the same. It's just a movement between the two equal and opposite. So if you take that adjustment out, the fly has actually dropped slightly from August last year, about ZAR120 million.
Q: Peter Cromberge asks: Does Capitec have any appetite for acquisitions in support of its growth for business banking and new markets?
A: Gerhardus Fourie, CEO: We've never been an acquisition company. We're a growing company, growing from ourselves. It was a big debate, are we going to build or buy in business banking, then Mercantile came along. So our focus is we've got enough growing opportunities in South Africa and internationally. So I don't see acquisitions as a prime focus for us. But if something comes in that's exciting, we'll definitely look at it.
Q: Do you have any plans for bond issuances in the DCM market in the short to medium term?
A: Grant Hardy, CFO: No, we're not looking at any for the remainder of the financial year, we're waiting for the flac regulations to be finalized, and then we'll start looking at potential issuance of flac.
Q: Ross Krige asks: Would you mind expanding on the strategy for airtime advances and the size of the opportunity and the progress made?
A: Grant Hardy, CFO: We just launched it -- there's a big need for clients to take airtime advances. I think I'm not going to elaborate on the opportunity, going to look at MTN and Vodacom's income statements and see what they're doing on airtime advances. These advances are only purely on Capitec Connect. And over time, we'll bring out advances on all suppliers. We believe there's a massive opportunity.
Q: In business banking, what type of clients are you having the most success with measured by client revenue levels?
A: Gerhardus Fourie, CEO: If you look at the client base on the lending side, it's probably predominantly in the ZAR20 million and higher that's driving the credit side at this stage. We've just started really focusing on the 7.5 million and lower. So I think you're going to see a switch in the next two years to your smaller guys. If I took out merchant loans, merchant loans were normally about ZAR10 million a month. Last month, we've done close to ZAR60 million. So I think that's going to go up to about ZAR80 million, but it gives you -- it's a small base, but it's massive volumes, that's going to come through over time.
Q: Mark du Toit of Oyster Catcher Investments asks: When do you see your focus change from South African growth to international growth? And when -- in which country or all countries at once?
A: Gerhardus Fourie, CEO: For me, it's not a question of focus. We've got a very good strong team in AvaFin where we believe what we're doing. We are going to look at taking four or five of our young people across to learn and to experience what's happening in that particular space. Our predominant focus, and I've said it always, for the next three to four years is South Africa. We need to optimize strategic initiative, insurance, business banking, et cetera. But we slowly but surely -- so we're going to start building AvaFin. We haven't much said which country. But I think if you look at Poland, Czech, Spain and Mexico, any one of them are very exciting prospects to go into.
Q: Why is the coverage of loans strengthening when the macro is improving?
A: Grant Hardy, CFO: Previously, when we used to write a loan off, we looked at two criteria. It was either that a client missed four consecutive payments or when they went into handover, we gave the clients a score and if it was below that particular, we wrote you off. Under IFRS 9, we write up a client when there's no reasonable expectation of recovery, and we consistently monitor this. In doing so, we've actually removed the handover score piece. So we now allow the true behavior to take place for the clients to miss four consecutive payments before we write them off. What's effectively happened here is it means that we have ZAR1.6 billion additional balances on balance sheet. And these are provided at sort of 96%, 97% and the majority sit within the greater than three-month bucket, and that's really driven, let's say, the increase in coverage.
Q: What are the plans for AvaFin's future contributions to the group's net interest income?
A: Gerhardus Fourie, CEO: AvaFin's contribution is expected to remain around 1% in the near term. Future contributions will depend on pricing adjustments and funding strategies, which could impact its overall contribution.
Q: What is Capitec's strategy for expanding its business banking client base?
A: Gerhardus Fourie, CEO: We are focusing on smaller clients with revenue levels below ZAR7.5 million. We have seen significant growth in merchant loans, and we
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
