#258: The risks for Capitec*

Simon Shares

• Our banks are now being downgraded by S&P and Fitch, this is to be expected.
• Tongaat*, I have been buying and now have full allocation. Still my preferred second tier portfolio pick.
• Taste selling jewelry and doubling down on international food brands with another rights issue coming.
• Japan, worth investing in?
• Upcoming events
  • JSE Power Hour: Listed property instead or buy-to-let

* I hold ungeared positions.

Capitec* - should we worry?

Lots of concern abut rising bad debts and how this will impact Capitec.

They identify three risks; market, credit & business. Rescheduling is a risk that concerns many but Capitec defends it in being better business and they have over 200% provisions on arrears and they are well ahead of Basel 3 2019 requirements. Further when they reschedule a loan they increase provisions against non payment. They have been declining more loans and have been tightening credit granting criteria since April 2015 and now 92% of the value of a loan is provided for when three instalments are missed. In short they are obsessive about managing risk. That said tougher economic conditions, credit card and longer term loans do add to risk and they will likely see bad debts increasing. But they are not going to do an African Bank.

Longer term they're earning more from non interest but this will take a long time to become significant against loan profits.

The annual report is due later this month and will be online here.

I had an aggressive R720 buy price, but that was before shuffles and downgrades and with growth likely to be hit post all the noise R620 is my safer buy price.

We Get Mail

• Mkululi
  • The question is in February the end/beginning of government year. The money I contributed which was pulled on the night of 28Feb2017, which financial year does it belong to? last year/this year.
• Jonathon
  • I just watched the "lazy trading system explained" video and I had one question. In the risk management section you, Simon, talk about initial and secondary entry points to invest your 25% in 12.5% blocks however I was unclear as what qualifies as a secondary entry. Is the secondary entry point the next time both the primary and secondary triggers occur following the first investment?
• Alexander
  • I am giving my nephew an investment account with a lump sum of R1000 for his 16th. I am leaning towards an ETF. Could you possibly suggest one that would be a good long term investment?

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