Capitec, one of corporate South Africa’s biggest success stories over the past two decades, has paid handsomely to its early investors.
The bank today has more than 18 million clients and rakes in R8 billion in annual profits.
The Stellenbosch-based bank also has a market value of nearly R240 billion – making it the third largest of the JSE-listed banks.
Pieter Koornhof, analyst in the Investment team at Allan Gray, said since listing in 2002, Capitec has delivered a total shareholder return of 46% per annum (p.a.), dwarfing the 13% p.a. from the FTSE/JSE All Share Index (ALSI) and the 32% p.a. achieved by Naspers, the second-best performing share over the period.
“For context, if you had invested R1 000 in the ALSI on the day Capitec listed and reinvested all your dividends since, your investment would be worth R11 457 today – a very respectable return that exceeded inflation by more than R8 000. A similar investment of R1 000 in Naspers would have grown to an impressive R287 378. However, R1 000 investment in Capitec would be worth a staggering R2.3m,” he says.
He adds that there are many lessons to be drawn from Capitec’s runaway success. He says the banks founders intentionally targeted the banking industry due to its high barriers to entry and large market size and that from the beginning, Capitec aimed to disrupt the industry.
“At the heart of the business was (and still is) its strong client-centric and innovative culture. The company aims to provide simple and accessible financial services. This includes high-quality client service and fees that are simple, transparent and affordable, often priced much cheaper than competitors. It has also been innovative in finding ways to better serve clients, including keeping branches open on weekends, running a 24-hour call centre, and paying interest at high rates on savings accounts,” he says.
The success of Capitec has also made its founders filthy rich along the way. One of its founders Michiel Le Roux, who today owns about an 11% stake in the comp ani is estimated to be worth $1.4 billion by Forbes.
Koornhof says one of the successes of Capitec was refrained from going into secured lending and investment banking even though these are highly profitable segments for the other banks.
“By not offering a wide range of complicated products, Capitec avoided adding complexity (and the resultant costs) to its operations and IT systems. This business model built on large volumes of small and relatively short-duration transactions had a second-order benefit: Capitec could quickly receive feedback and learn from what was working and what was not, and no individual mistake was big enough to put the company at risk.”
Capitec has also made inroads in business banking in recent years. The lender acquired Mercantile Bank in 2019 from the Portuguese government and plans on rebranding Mercantile Bank to Capitec Business in the first quarter of next year
South African Reserve Bank’s Prudential Authority last month also granted Capitec a licence to conduct life insurance business in South Africa and is planning to start underwriting its own life and funeral insurance products soon.
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