Capitec Bank Holdings Limited (JSE: CPI) showed signs of a promising financial success story in its latest interim report. With headline earnings rising, the bank’s optimistic outlook has ignited a 6.43% surge in its share price during Thursday’s session. As the largest retail bank by clients in South Africa, Capitec radiates confidence that it has weathered the storm of higher interest rates and elevated inflation, setting the stage for a promising second half of the financial year.
The graph below shows the performance of South African retail banks year to date. It is clear that Capitec (-5.76%) has been under pressure, showing the largest drawdown out of its industry peers after declining close to 28% in the first six months up to June. Capitec targets lower-income consumers in the country, a target market that has been largely untouched by the other larger banks, which has resulted in the company accumulating close to 21M customers. However, due to the elevated interest rates in the country, the company has struggled with increased impairments on its loans, which have offset the increase in net interest income and, therefore, straining its operational expansion ability.
In the latest interim report, its credit impairment charge rose by 62% to R4.76Bn, reflecting a challenging landscape over the last six months. However, there were signs of improvement, as the overall impairment charge for the second quarter was significantly lower than the first. The company has also signalled that the worst is behind them, with the percentage of its loan book showing strain coming in at 7.6% in the latest interim report, returning to levels last seen in 2019. On the top line, net interest income advanced 17% to R8.02Bn, while transaction and commission income expanded by 24% to R6.91Bn. Overall, income from operations was up 21% at R17.23Bn, on which the company generated headline earnings of R4.69Bn, showing a 9% improvement from the prior year. Headline earnings per share (EPS) amounted to R40.72, rounding off an optimistic interim report.
Technical
On the 1D chart, a symmetrical triangle has formed as the share price consolidated after a sustained uptrend. After breaking through the triangle’s resistance after the earnings announcement, the price is now retracing and has broken below the daily pivot point at R1,703.15, suggesting bearish intraday momentum.
The 50-SMA (blue line) has converged above the 25-SMA, giving the bears the upper hand. If this momentum continues, the support at R1,639.60 could act as a last line of defence against the potential triangle breakdown, which could lead the price toward R1,587.26. From the early August peak, the Fibonacci midpoint is then in focus at R1,575.56, where additional support could be found at the 61.8% Fibonacci golden ratio of R1,521.44.
However, if the dynamic resistance of the triangle prevents sustained downside from current levels, the price could continue trending toward the supply zone at R1,796.16. If the upside sustains, higher resistance at R1,918.86 could soon be within reach.
Summary
After delivering a solid interim earnings report, Capitec’s share price soared over 6% on Thursday. However, the price has retraced toward the dynamic resistance of the symmetrical triangle at R1,711.86, where the directional trend could be determined going forward.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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