Share sales by Capitec directors, including founding CEO Riaan Stassen, gave long-time bears some much needed ammunition.  The Sunday Times newspaper added fuel through publishing an emotive article headlined “Capitec bosses ditch R175m shares as sector cracks” quoting an unnamed analyst (a dangerous practice for any journalist) as saying it showed the top brass no longer believe the Capitex story. I was among the sceptics until taking a trip to the Stellenbosch head office and working through the business model. So to help the Biznews community avoid jumping to conclusions, we asked director Carl Fischer for his perspective. It makes interesting listening, especially for those short sellers who keep confusing Capitec with Abil – when few similarities exist. – AH
CARL FISCHER: As you know, our CEO Riaan Stassen, retired last year and he’s obviously decided to spread his profile and his portfolio, which I think is a sensible thing for anybody to do when they’re at the retirement age.
ALEC HOGG: What percentage of his shares has he actually sold?
CARL FISCHER: Riaan’s portfolio’s net sales is in the order of about eight percent. It is a fairly small amount, given the fact that he still holds well over two million shares in Capitec now, which is a substantial value and so too, do two other key players or directors – Andre du Plessis and our new CEO Gerrie Fourie. Andre has sold seven percent of his portfolio and Gerrie 1.6 percent.
ALEC HOGG: So it’s relatively small in the context of their entire holding.
CARL FISCHER: Absolutely, yes. The reason behind this Alec, particularly with the existing guys, is that most of us – or all of us – took up the rights offer that Capitec had 18-odd months ago. Some of us needed to do a bit of funding to be able to do that. As I said, some of our present guys decided to sell, clear that debt, and to use quite a substantial part of the proceeds of the sale to buy options, which became available to us in April this year.
ALEC HOGG: So it hasn’t been used to buy jet ski’s or new houses?
CARL FISCHER: No, not that I could tell – no.
ALEC HOGG: Are you guys still confident that despite everything going on in the unsecured lending sector – we obviously know the travails of Abil – that Capitec is still on track?
CARL FISCHER: Alec, I think we are on track. Things are tight, there’s no question about it, but I think the entire market has reacted quite substantially. If you take the last quarter of 2013 versus the last quarter of 2012, the credit extended in the unsecured market declined in the order of R8bn on R29bn. What I’m saying is that in 2013, the credit extended number was R21bn versus R29bn for the same quarter during the prior year. That’s substantial and I think all the players have tightened up and provided blatantly less credit over the course of last year, and in particular in the last quarter of last year. You’re seeing all the providers applying far more stringent credit rules, where Capitec has been doing this since October/November 2012. We’ve had a number of tightening up steps we’ve taken through the course of 2012/2013 and we’re comfortable that things are where they need to be. We’re seeing a flattening of declined rates, but it’s difficult to say. It’s still too early (1) and (2) generally, the year starts off quite badly – February/March/April – because of the December hangover, but it’s in line with what we expected for the last couple of years.
ALEC HOGG: What’s happened to your market share in the unsecured area, since you started cutting back in November 2012?
CARL FISCHER: We have declined somewhat. We’ve openly said we think we are the most conservative in the market. Obviously, everybody tends to want to say that, but we honestly believe that. Having taken those earlier, more stringent steps, we’ve definitely lost market share in the longer term sectors of the unsecured market, the 48-month plus…there’s no doubt about that, but we’re happy with that approach given the present conditions in the market.
ALEC HOGG: Carl, just to focus there for a moment, I was talking to somebody recently who suggested that what has been happening in unsecured lending is that there were loans outstanding that customers could not service. As a consequence, all they did was take out a bigger loan over a longer period, hoping that they’d be able to get it right in that time. Has any of that happened at Capitec?
CARL FISCHER: I can never say ‘it didn’t happen at all’ but again, bear in mind that there is a monthly commitment, which is putting a client under pressure. It is about cash flow, and that monthly commitment in terms of cash flow… If one can restructure, it can make a difference. However, I definitely would have said that it’s in no way the rule of thumb. Our approach is fundamentally ‘behaviour and affordability’ and given that, one would look at that situation on a client-by-client basis and say ‘is this a short-term pressure situation that the client is experiencing or is it a sign of significant mismanagement’. Obviously, the mismanagement side…there is just no way we would look to extend the term to simply buy the client over.
ALEC HOGG: I had a chat today with Dave Woollam on CNBC Africa, and he was talking about the industry as a whole needing to do things to ensure that it doesn’t fall into the same hole that it fell into in the past. I think he was referring more to Abil – the company he was CEO of and left some years ago. Do you think there’s much you could do as an industry – together?
CARL FISCHER: Without a doubt. There’s definitely the need to implement some of the thinking that has gone into the recent credit amendment proposals. We think that the clearer definitions around affordability calculations are fundamental. The clarification of a situation around insurance as part of credit…it’s a very complex concept, which we believe few clients fully understand – the value they’re getting versus the price they’re paying. We believe there are a number of steps that are being addressed by the NCR and hopefully, if they can be implemented in the ideal way, it should address conditions in the market without a doubt. Alec, the other thing one must recognise is that even in the credit card market, there have been ups and downs over the years. Credit providers become a bit more bullish and then retract, given the performance in the market. This is probably a typical sign of what is happening in the context of the unsecured market. It’s still a pretty new market by credit standards and all the providers need to find their feet fully in the market, which is probably the process one is seeing here right now. I do believe that danger exists with the smaller players that are aggressive in short-term money lending. That sector of the market needs to be cleaned up and the monitoring thereof needs to be solid to make sure that there are no players operating below the radar.
ALEC HOGG: Capitec is all over the country now and presumably, also in the north-west area. Have you seen any impact of the platinum strike?
CARL FISCHER: Definitely. Luckily, it’s not that substantial. We pre-empted some of the issues there. The problem with the platinum strike isn’t just the mines themselves. All the ancillary suppliers form part of that. Job loss has gone beyond just the mines themselves. It is concerning, but one hopes that there’s a solution on the horizon.
ALEC HOGG: But it isn’t something that is likely to have a deep impact on your results, say, for the coming financial year.
CARL FISCHER: No, by absolutely no means – no, definitely not.
ALEC HOGG: Just to close off with, in most industries when a competitor goes through difficult times it does open the door for a strong incumbent. Are you finding that with all the struggles we’re hearing around ABIL, it’s been good for you, or not?
CARL FISCHER: No, I think it’s bad for the industry, unfortunately. Abil is a substantial player. They’ve been around for years. The market has respected what they’ve achieved over time and from both a client support point of view as well as a general funding of banks point of view, I don’t believe the ABIL challenges are good for the market as a whole. It’s maybe good to be hyper-introspective of your own practices etcetera. It just highlights those elements again, but I don’t think it’s ‘on the back of ABIL not doing well’. I think it’s ‘on the back of the industry state’ per se. I think Abil’s conditions have not been good for anybody, quite frankly.
ALEC HOGG: They certainly haven’t been good for the share price. Despite your continued growth, your share price doesn’t seem to be doing much in the past year.
CARL FISCHER: Yes, we’re very happy with where we’re going on the bank’s side. We are trying to grow rapidly still. We’re excited about the adoption rates and what we call ‘gaining of primary bank clients’. Capitec is seen very positively in the transacting side of banking and we’re very excited that we continue to grow strongly in that area.
ALEC HOGG: But as I say, your share price doesn’t reflect any of that. Do you think it’s a bit of the ABIL overhang?
CARL FISCHER: I’m not sure. I can’t really say. I suppose it’s really just that we probably managed to continue some fairly good levels of growth, notwithstanding the fact that the market as everybody knows, is under pressure and has been since late 2012.
