File photo: Reuters

Johannesburg - It is two days since furniture and vehicle retailer JD Group stunned the market with its announcement that profits for the six months to December would be wiped out by the need for write-offs and increased provisions; and it is just one day since Statistics SA reported that growth in retail sales had slowed to 2.8 percent in 2013 from 4.6 percent in 2012.

Analysts are expecting trading conditions to continue deteriorating with higher interest rates, cost pressures from the rand’s weakness and generally sluggish economic conditions likely to add to the pressure on consumer spending.

Despite this being a really bad time to be a retailer Gerrie Fourie, who recently took over from Rian Stassen as the chief executive at Capitec, insists: “We’re not bankers, we’re retailers.”

For bankers, says Fourie, it is all about risk while for retailers it is all about understanding the customers’ needs.

“We wouldn’t have been unique if we had developed Capitec from a banker’s perspective.”

Fourie would not comment on the group’s earnings performance for the six months to end February other than to say that trading conditions had been tough.

“The days of growing at 30 to 40 percent are gone.”

Certainly Fourie’s office, at Capitec’s head office in TechnoPark, which is probably one of the few unattractive spots in Stellenbosch, has none of the luxury associated with a bank head office.

Indeed it has none of the luxury associated with even your common-or-garden head office.

There is one desk – smallish – and one table – smallish; the walls are bare except for a calendar and a noticeboard.

The unique proposition to which Fourie alludes is what propelled Capitec from start-up to the fourth-largest bank – in terms of customer numbers – in just 13 years.

In that time the company has achieved a 31 percent compounded annual growth rate in headline earnings and in dividends.

The 59 percent compounded annual growth rate in the Capitec share price over that period has made its senior executives and controlling shareholder exceptionally wealthy.

The essence of the unique proposition is simple and affordable banking and has won Capitec a 12.7 percent market share of banking clients.

Despite the consistently strong earnings performance and growth in market share, the company has struggled to shake off an element of scepticism among investors.

“Initially it was because the market didn’t know much about Capitec and thought it might be too good to be true. Now, as it has become an established player, it is suffering from the widespread and growing concerns around unsecured lending,” remarked one analyst.

Despite emphasising that it manages its business very conservatively the Capitec management is constantly having to defend itself against comparisons with African Bank (Abil), which suffered a major blow when the slump in the unsecured lending market exposed the weakness of its provisioning policy.

“This week’s announcement by JD Group is what investors are always fearful of; every company tells the story of how well provisioned they are, until it’s become unavoidably apparent that they’re not,” said the analyst who added that problems were expected to crop up all over the sector in the coming months as consumers came under increasing pressure.

Johann Scholtz of Afrifocus Securities said that although Capitec did look comparatively strong it would not be completely insulated from the tough times ahead.

Scholtz said that three things made Capitec different from players such as JD and Abil.

“It has a strong and growing deposit base, which means it doesn’t have to go to the market to bolster its funds; it’s increasing its income from banking transactions; and it has a conservative provisioning policy.”

Scholtz said his biggest concern related to the environment in which Capitec was operating.

He said that as Abil and other credit providers pulled back on their credit granting this would have an adverse impact on the liquidity available to its client base.

Yesterday, the Capitec share price closed unchanged at R181, which is not far off its 12-month low of R179 in August.

But the price has held up relatively well given that its 12-month high, reached last April, was R221.50. - Business Report