Business Insider Edition

Capitec’s finance boss just sold R118 million in shares - as investors believe the stock is overpriced

Helena Wasserman , Business Insider SA
 Jan 14, 2020, 01:58 PM
capitec
Capitec's share price. Source: Fin24
  • Capitec's chief financial officer sold shares worth R188 million in the bank last week.
  • The 58-year old André Du Plessis apparently wants to diversify his portfolio.
  • He's not the first insider to sell as the share looks increasingly expensive.
  • For more stories, go to BusinessInsider.co.za.

Capitec’s chief financial officer André Du Plessis cashed in more than R188 million worth of shares last week – just after the bank's stock hit new record highs.

The transaction only represents 12% of Du Plessis’ holding in Capitec, the bank’s head of communication, Charl Nel, said.

The 58-year old Du Plessis told Capitec that he needed to diversify his portfolio, Nel said. He continues to hold some 900,000 shares – a 0.8% stake in Capitec.

Still, some believe the transaction signals that insiders don’t see much upside, with the share up more than 320% over the past five years despite a weak South African economy. It hit a record high of almost R1,500 at the end of last year.

Du Plessis is not the first insider to sell Capitec shares.

In November last year, Capitec director and prominent investor Jean Pierre Verster sold all his shares in Capitec. Verster has been an independent non-executive director of Capitec since 2015, and chairs the company's audit committee. He told Netwerk24 that it was a personal decision and that the money will be used for his new hedge fund business, Protea Capital Management. He sold his 5,000 shares for R7.2 million.

In the same month, Capitec head of risk management Nkosana Mashiya sold almost R13 million in Capitec shares.

“We do not place too much value on management ‘sell’ transactions,” says Stephán Engelbrecht, fund manager at Anchor Capital. “This is because this can be done for various reasons, like tax and portfolio diversification.”

“We do however take a lot of interest in management purchases. This usually highlights their optimism on the longer-term prospects of the company. But they can get it wrong, as we have seen lately with quite a few SA corporates.”

In Du Plessis’ case the sale is due to his desire to diversify his portfolio as he moves closer to potentially stepping down as an executive at Capitec, Engelbrecht believes.

Still, he thinks Capitec is very expensive.

“We appreciate that it still offers significant growth prospects through their acquisition of Mercantile, their ongoing customer acquisition and the continued growth of their credit card and funeral insurance.

“This is especially enticing when compared to the lacklustre growth prospects of the rest of the SA corporate universe.”

Last year Capitec bought Mercantile Bank, which it believes will speed up its entry into the business banking market. Capitec's headline profit jumped 20% to R2.9 billion in the six months to end August.

But unfortunately this growth comes at a very expensive price tag of 21.9 times forward price-earnings ratio, says Engelbrecht.

(The price earnings ratio calculates what investors are willing to pay for a rand of the company’s profits. The forward PE is calculated by dividing the share price by expected future profit). 

Currently, the JSE’s all share index is at a price-earnings ratio of only 16.

“So, although the long-term growth story remains firmly intact there will probably be better entry points a long the way.”

Gryphon Asset Management analyst Casparus Treurnicht also believes Capitec’s share price is already discounting most of the future good news and profit hikes.

“In other words: it’s expensive.”

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