Investment Summary
■Unique Brand Story. CPIJ’s low-cost banking model will continue to attract more
customers that are price sensitive and looking for better-value alternatives. The bank
offers a highly attractive savings rate and low transaction fees owing to its lean cost
structure.
â– Brand Opportunity. CPIJ plans to open 40 branches in fiscal 2010, which will
increase its network to over 400 in total across South Africa. Management expects to
obtain better retail locations, as the current market downturn has resulted in increased
availability of space. CPIJ also plans to move to more affluent areas to attract middle
income earners, a market that is traditionally the preserve of the big four. The bank
introduced more long-dated, high-value loans to attract the middle to upper income
earners (recently launched 48 months R100,000 loans). In the first half of 2010, CPIJ
had 2.1 million active clients; management is confident that by fiscal 2010, the
company will have 2.5 million customers, and targets 5 million customers in
2016/2017.
â– As long as CPIJ is able to manage the impairments risk, we believe that the company
will continue to produce earnings growth. CPIJ consistently revises its credit scoring
criteria to manage its risk exposure. CPIJ limits its exposure in sectors that are
currently under severe pressure, such as Mining and Automotive, by declining loans to
potential clients employed in these high-risk sectors. CPIJ’s exposure in these sectors
currently is less than 7% and CPIJ has good exposure in government with 45% of the
bank’s clients employed as civil servants, which lowers the risk of nonperforming loans
due to retrenchments.
â– Market Perception. Although CPIJ is attracting clients from the big four banks through
its low pricing, growth remains in the underbanked market, in our view. According to
industry research, it is estimated that only 63% of South Africa’s adult population is
banked clients—5% of these have home loans and 3% have personal loans. Also, a
Sindi Daniso
27 11 384 2218
[email protected]
Walter Jacobs
27 11 384 2217
[email protected]
25 February 2010
Great Brands of Tomorrow 130
number of clients see bank accounts as a way to receive their salaries and are not
taking advantage of other bank products. Therefore, we believe that there is still
potential for growth in the mass market, as more people become aware of other
banking services.
â– Valuation. We believe that taking the long-term view is warranted for a compelling
brand story in a growth phase. Our seven-year target price is 7 times our EPS
estimate of R19.13, which embeds R17.7 billion in gross loans and a 26% net interest
margin, and would drive a 6% CAGR return over the next 7 years.
Refer this bank to all and sundry now.