Buy: Capitec
Capitec Bank’s success in the South African financial sector is unparalleled, and the group continues to grow strongly.
Headline earnings grew by 26% in the first six months of the current year and return on shareholder equity jumped to 31% — an impressive performance.
Success will depend on growth in segments other than traditional banking. Cross-selling will be critical, with noninterest income boosted by value-added services, insurance and the Capitec Connect fintech segment.
The business banking segment is growing rapidly, with a 59% increase. The group’s client base is 25-million, which opens up vast opportunities.
Management continues to execute well and is adept at discovering and developing new revenue lines. The share can be considered a core holding for the long term.
Sell: Pick n Pay
Pick n Pay remains a strong sell: the most recent trading update made for depressing reading.
Pick n Pay again expects a significant decline in headline earnings — in the range of 28%-34% — for the first half of the current financial year.
The company’s turnaround plan involves converting underperforming stores into Boxer stores. The goal is to reach breakeven in financial 2028. In the South African investing landscape, this is forever!
I am of the firm belief that without Boxer, Pick n Pay would no longer exist.
The company suffers from chronic operational underperformance and posted a R3.2bn net loss in 2024. The stores segment continues to lose market share and shoppers remain unimpressed.
The R12.5bn recapitalisation — which entailed the Boxer IPO and a rights offer — addressed technical insolvency and the breach of debt covenants. But execution risk on the turnaround plan is immense. The share should be sold.
