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SO LEON KIRKINIS IS African Bank’s biggest individual shareholder after paying R7,5m for another 250 000 shares in the company, taking his personal stake to around 4% of the firm, while private equity group Mayibuye has committed R463m in loan and equity funding to Blue Financial Services, which has seen its value decimated due to fears of bankruptcy.
Even PSG CEO Jannie Mouton has recently been bemoaning the 2003 unbundling of part of the company’s 55% stake in Capitec. It now owns 34,9% of the company. In PSG’s annual report Mouton writes: “Hindsight is a perfect science – however, from the company’s perspective we might have made a mistake to have unbundled the Capitec investment in 2003.”
Hindsight may be the perfect science, but are a CE’s current regrets about a seven-year-old decision sufficient reason upon which to base a current investment call?
Microlenders have gone off the boil. Hardly surprising, considering the negative news flow about some of the more marginal players, especially the collapse in valuations of firms such as African Dawn Capital and Blue Financial Services, the latter being obliged ahead of its results to suspend trade in its shares until its board could develop a reasonable level of certainty about its earnings. When it finally published results it revealed a loss of about R1bn – 10 times its market capitalisation.
You might also want to avoid the rats and mice and the larger players considering their top-line growth for 2010 will be muted at best. Big banks might see earnings growth between 20% and 30% up on 2009, courtesy of the unwinding of bad debt positions, but those counters are already pricing in that recovery.
What’s more difficult to forecast is when bank risk appetite will return to again grow lending books. Early indications of a recovery in personal debt levels are positive, with household debt as a percentage of disposable income – which rose from 45% in 1970 to 54% in 2006 and then jumped to more than 80% in 2008 – moderating to 78,4% in first quarter 2010.
There are also early signs of tentative credit extension as the economy begins to recover from the 2009 recession. Statistics SA reports a significant improvement in personal sequestrations, with the April number almost 35% below the corresponding 2009 period.
However, consumers remain stretched. According to National Credit Regulator CEO Gabriel Davel, nearly half of the 18m South Africans with credit are struggling to meet their debt commitments.
Despite African Bank dropping the ball on its traditional lending business it finally produced a turnaround at Ellerine. Abil is strongly capitalised, with a capital adequacy ratio of around 25%.
Analysts have criticised Capitec over its muted coverage ratio relative to that of African Bank, but CEO Riaan Stassen argues the complexity in evaluating the group’s arrears lies in the significant change in the composition of its book. The company has gradually introduced longer-term products. Whereas in 2006 – when its entire book was made up of loans of 12 months or less – at its financial year-end in 2010 that number was down to 77%.
Where does that leave investors?
Institutional investors are put off by the low levels of liquidity in Capitec, which trades an average of R30m/day. But that’s plenty for most private investors who are looking to either enter or exit the counter, which trades on a testing historical multiple of 19 times. But analysts are expecting earnings of around 700c for 2010, putting it on a forward multiple only slightly more demanding than SA’s Big Four banks.
“Abil got the benefit of extending the term of its book years ago and we saw its loans grow from R5bn to nearly R20bn in a short period. Capitec will show superior growth,” says Chris Steward, at Investec Asset Management. However, he prefers the African Bank story, especially since the price has come off demanding levels. “The market isn’t pricing in the full potential of Abil meeting the Ellerine targets they have set. With a dividend yield of 6%, if you believe it will meet those targets then it’s the pick of the microlenders,” says Steward. “But,” he adds quickly, “if you want to make money you could do a lot worse than mirror Mouton’s trades in PSG.”
That way you get Capitec at a discount and you benefit from Mouton’s widely respected knack for getting markets right more often than not.
Even PSG CEO Jannie Mouton has recently been bemoaning the 2003 unbundling of part of the company’s 55% stake in Capitec. It now owns 34,9% of the company. In PSG’s annual report Mouton writes: “Hindsight is a perfect science – however, from the company’s perspective we might have made a mistake to have unbundled the Capitec investment in 2003.”
Hindsight may be the perfect science, but are a CE’s current regrets about a seven-year-old decision sufficient reason upon which to base a current investment call?
Microlenders have gone off the boil. Hardly surprising, considering the negative news flow about some of the more marginal players, especially the collapse in valuations of firms such as African Dawn Capital and Blue Financial Services, the latter being obliged ahead of its results to suspend trade in its shares until its board could develop a reasonable level of certainty about its earnings. When it finally published results it revealed a loss of about R1bn – 10 times its market capitalisation.
You might also want to avoid the rats and mice and the larger players considering their top-line growth for 2010 will be muted at best. Big banks might see earnings growth between 20% and 30% up on 2009, courtesy of the unwinding of bad debt positions, but those counters are already pricing in that recovery.
What’s more difficult to forecast is when bank risk appetite will return to again grow lending books. Early indications of a recovery in personal debt levels are positive, with household debt as a percentage of disposable income – which rose from 45% in 1970 to 54% in 2006 and then jumped to more than 80% in 2008 – moderating to 78,4% in first quarter 2010.
There are also early signs of tentative credit extension as the economy begins to recover from the 2009 recession. Statistics SA reports a significant improvement in personal sequestrations, with the April number almost 35% below the corresponding 2009 period.
However, consumers remain stretched. According to National Credit Regulator CEO Gabriel Davel, nearly half of the 18m South Africans with credit are struggling to meet their debt commitments.
Despite African Bank dropping the ball on its traditional lending business it finally produced a turnaround at Ellerine. Abil is strongly capitalised, with a capital adequacy ratio of around 25%.
Analysts have criticised Capitec over its muted coverage ratio relative to that of African Bank, but CEO Riaan Stassen argues the complexity in evaluating the group’s arrears lies in the significant change in the composition of its book. The company has gradually introduced longer-term products. Whereas in 2006 – when its entire book was made up of loans of 12 months or less – at its financial year-end in 2010 that number was down to 77%.
Where does that leave investors?
Institutional investors are put off by the low levels of liquidity in Capitec, which trades an average of R30m/day. But that’s plenty for most private investors who are looking to either enter or exit the counter, which trades on a testing historical multiple of 19 times. But analysts are expecting earnings of around 700c for 2010, putting it on a forward multiple only slightly more demanding than SA’s Big Four banks.
“Abil got the benefit of extending the term of its book years ago and we saw its loans grow from R5bn to nearly R20bn in a short period. Capitec will show superior growth,” says Chris Steward, at Investec Asset Management. However, he prefers the African Bank story, especially since the price has come off demanding levels. “The market isn’t pricing in the full potential of Abil meeting the Ellerine targets they have set. With a dividend yield of 6%, if you believe it will meet those targets then it’s the pick of the microlenders,” says Steward. “But,” he adds quickly, “if you want to make money you could do a lot worse than mirror Mouton’s trades in PSG.”
That way you get Capitec at a discount and you benefit from Mouton’s widely respected knack for getting markets right more often than not.
