Sasha Naryshkine on the rise and rise of the JSE’s 100-bagger Capitec

Interim results from  Capitec dominated today’s CNBC Africa Power Lunch conversation with Vestact’s Sasha Naryshkine. Although he doesn’t bank there, Sasha is a member of the Capitec fan club and despite the 122-fold increase in its share price since listing, he reckons further upside is possible. The best time recently to have bought a slice of the business was when the price dropped 20% after the collapse of Abil. A lesson there for long-term investors to always be alive to possibilities presented when Mr Market allows emotion to rule logic. Something which happens a lot more often than you’d think. – AH 

 

ALEC HOGG: It’s interesting to have a look at the PPC Board of Directors. As mentioned earlier, the ten remaining – this is after the departure of Ketso Gordhan – nine of them are black Africans, so it’s not as though this board doesn’t represent the new South Africa. The white guy on the Board is Tim Ross, who is 69 years old, ex-Deloitte. There are five chartered accountants in amongst that group, so there are well-qualified people…but not a whole lot of business experience when you go through the Board – people who’ve been professional managers or professional Directors. Perhaps Ketso wasn’t getting the traction he wanted from this group of people. I guess he can say to the shareholders we need new directors…..

SASHA NARYSHKINE: Maybe those shareholders – who are going to be the people who will shell out the most money with regard to big Capex plans, the DRC, and elsewhere on the continent – will give him the thumbs up. Certainly, with local infrastructure plans not as quickly, forthcoming from government, the growth is certainly north of our borders.

ALEC HOGG: We look forward to talking to Ketso in a little while. The Capitec first-half results – your view?

SASHA NARYSHKINE: I think it’s a fabulous business and just another reminder of how, in the new South Africa – if you think about it and you look at all the names on the Boards and the core clientele – it’s a wonderful mishmash, isn’t it. PSG have done a wonderful job – Michiel le Roux and Riaan Stassen. Credit must be given where it’s due. It listed at R2 a share. It’s been a 100-bagger (now R244 a share). In addition, the interim dividend is 246c a share up 21 percent, so there you go. If you’ve just been a happy holder and of course, followed your rights because remember, they did quite a lot of rights issues along the way.

ALEC HOGG: Have you been into one of their branches?

SASHA NARYSHKINE: I have been into one of their branches. The fact that they’ve managed to attract nearly six-million customers…   If you had said that 10/11 years ago, everyone would have said you’re completely nuts, but it’s just another reminder of how South Africa seemingly, has a lot of scope to grow with financial services in the right place. The tie-up with SA Home Loans and unlocking a large portion of value that exists in the South Africa context in households because there are very few mortgages in South Africa. I think the number is somewhere in the region of two-point-four million mortgages in the whole of South Africa. Many more households that could get a mortgage either in order to add on more or to in fact, grow their own businesses in their personal capacity.

ALEC HOGG: I say that because my wife and I went on Friday. They were open until 6pm. She opened an account. It was extremely slick. The staff were there until 6:15pm working with her on getting the account done. Now, I don’t think any other bank in South Africa is open beyond 5:00. Most of them close at 4:00.

SASHA NARYSHKINE: Most of them close at 3:30.

ALEC HOGG: On a Friday, if you’re lucky… It shows that they’re looking at banking very differently and I was extremely impressed by the processes. You can open an account and leave (as she did) half an hour later with her new bank card, with the ability to draw from any ATM and free from certain places. They’ve gotten a lot right and it isn’t a fluke. The Capitec story is not a story that we need to confuse with the problems with Abil.

SASHA NARYSHKINE: I don’t think so because they’re a front-end, retail, deposit-taking bank and if you’ve seen, deposits have grown substantially. That means they’re obviously attracting more high-end clientele – people who’re switching from the traditional big four. I think FirstRand and FNB have been very innovative as well, and they’ve attracted more customers too. The tipping point between when people finally throw in the towel and say ‘my bank is no longer good for me’…you need to have an exceptionally high pain threshold to actually change, eventually. In addition, maybe other retail customers are looking at it, and as it spreads and people spread the good word, saying ‘I get low fees and great deposit rates etcetera’, you’ll see a much bigger push. Ironically, you could get higher net worth individuals moving towards Capitec.

I guess, with the whole Abil unwind and them being one of the participants in the new good bank: it could ironically, signal to the rest of the market ‘beware’ because they’ve obviously been eating many peoples’ lunch, but is it the high quality lunch. I think we’re probably getting that, if you know what I mean. Obviously, with customers like your wife, they’re starting to eat much better quality lunches.

ALEC HOGG: I can tell you that I’d recommend them any day. In fact, the whole experience was very pleasant. These employment figures: have you seen them yet?

SASHA NARYSHKINE: I haven’t seen them as of yet.

ALEC HOGG: How are we expecting the market to react? I guess, when you’re 25 percent or 26 percent, unemployment doesn’t really make that much difference.

SASHA NARYSHKINE: There’s a structural problem in South Africa (that we know well). A little bit later, Loane will probably flesh those out because I think he’s of the belief that it is lower than that, because the informal economy is much bigger than we’re stating statistically. I don’t know. I think South Africans have a very entrepreneurial spirit in them. It just needs to be unlocked. People need to be empowered with regard to their own abilities because we have great people in this country. We just need a lot more self-belief and entrepreneurial skills need to be pushed more and more.

ALEC HOGG: You need to read Jonny Steinberg’s book.

SASHA NARYSHKINE: I’ll read it. I’m currently reading a much worse book about the escape of a prisoner from Camp 14 in North Korea, so it’s dreadful. This one can’t be worse than that one.

ALEC HOGG: From a South African perspective, it’s an eye opener. Maybe our people are not as entrepreneurial as we’ve always believed. Anyway, we’ll hear from Mr Steinberg later. As far as the market as a whole is concerned today: anything jumping out at you? I see Anchor Capital’s at R5.10 now, its CEO Peter Armitage has many supporters.

SASHA NARYSHKINE: You never know who’s getting involved there and perhaps ‘Johnny-come-lately’s’ and many retail clients, but as I said to you last week, that’s good for us at Vestact.