It’s hard to escape the feeling that while the rest of the banking sector is playing by one set of rules, Capitec has done the old William Webb Ellis trick — picking up the ball and running with it entirely unencumbered by gigantic Kiwis trying to nail it into the ground.
The rest of the market may be moaning about economic conditions and ever-shrinking disposable income, but Capitec just gets on with churning out the numbers in what seems like serene progress no matter what the rest of the local economy is doing.
As a result of the competitive nature of the market, Capitec slashed its transaction fees in April, but it still managed to grow net transaction fee income by 12%, and headline EPS grew by 20% in the six months since January. It is also making inroads in what it describes as quality banking clients, which were up 15% to 3.5-million out of a total of 12.6-million accounts.
It is gaining traction in areas that were formerly the realm of the private banks, as a result of the realisation that quality transactional banking does not only appeal to the low-income segment. Its purchase of Mercantile Bank should be approved in the next few weeks, which will allow it to get stuck into the business banking market. While Capitec continues to invest in its branch network, it is increasingly migrating its client base to digital platforms, which come with considerable cost savings.
The bank is sticking to its formula of simplicity, accessibility and affordability in whatever it does, and it continues to perform impressively.
Blue Label Telecoms: battered and bruised
There’s more than a touch of "Apart from that, Mrs Lincoln, how did you enjoy the play?" in Blue Label’s results for the year to end-May.
While most of its operations performed creditably, and core headline earnings grew by 26% to R904m, this was comprehensively overshadowed by the impact of its investment in Cell C, which racked up a net loss of R8bn in the period, including impairments of R6bn. With admirable understatement, Blue Label notes that this had a significant negative impact on group earnings, which can roughly be translated as a total bloodbath.
The real question now is whether Cell C has a future, or whether the challenges it faces as the third player in a market dominated by two highly successful giants will ultimately prove insurmountable. Net debt is sitting at a precarious R8.2bn, and while its total revenues for the year showed a marginal increase, the company will need to make rapid progress on its turnaround strategy, in particular driving the operational efficiencies it needs to return to profit.
Blue Label was also forced to impair its entire investment in Oxigen Services India, resulting in a negative contribution to its bottom line of R276m. Apart from that and the debacle of Cell C, many of Blue Label’s other companies performed well, with 3G Mobile and Airvantage SA showing growth despite a tough consumer market. Its banking facilities with Investec have been extended, and the company believes its strategy to reduce interest-bearing debt and strengthen the balance sheet should ensure it has a sustainable future.
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