Why the sudden rand weakness?

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You're listening to the MoneywebNOW podcast series with Simon Brown. Live streamed every weekday at 6:30 a.m. It's Friday, 2nd of October.

Simon Brown (0:15)

We've got US unemployment data due to 30 this afternoon. Expected is unemployment unchanged 4.1 percent. I'm Simon Brown coming at you live and loud from the Moneyweb Studios in Shelton, Johannesburg. On the show today, Danie Dörfling from Moore Infinity. Capitec numbers came out Wednesday. It's Capitec, right? So the numbers are big. They're strong.

Stock is off the highs. Opportunity there may be more broadly in the banks. We'll get his view. Chatting with Niki Giles from Prescient Fund Services, what's driving ETF growth locally and surge in actively managed ETFs. And then thoughts from me on the RSA retail savings bonds, how they work, the risks and who are they for? This podcast is brought to you by Standlib Asset Management. Invest in more global opportunities through their partnership with JP Morgan Asset Management. Morning Headlines, Moneyweb, Petrol price set to breach 30 round mark in another fuel first. This is mirroring the record diesel prices seen post the Middle East conflict. Businessday, SSA's factory sector shows sign of recovery. PMI data yesterday, 50.7, surprisingly above that 50 level. Morning Markets, US is green, S&P 0.2 higher, Nasdaq 0.3% higher. East is mostly red, the exception is Sydney, a tenth of a percent up. Turkey is almost 1% down. Hong Kong is back trading and 2.7% lower, and Tencent 2.25% lower. Commodities mostly green, gold futures 2,408.

Brent is $102.09. Platinum $1,742.

And Palladium is the only red, $1,181.

The round is 1670 Bitcoin $85,400. And top for the opening call, green open expected 137 points. That is 0.14% higher.

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MoneywebNOW on the money. Also available on podcast.

Simon Brown (2:19)

Chatting now with Danie Dörfling here from Moore Infinity. Danie, I appreciate the time, as I said there in the intro, Capitec results out earlier in the week. Always good numbers coming out of Capitec. We kind of expect that. A lot more provisioning for bad debts. That might make some sense as well. Your thoughts on the numbers, your thoughts on if there's opportunity here with Capitec. It's about 10% off the highs, but it's never a cheap stock.

Danie Dörfling-Kruger (2:44)

Morning, Simon.

Thanks for having me. I think the breadth of the earnings growth is what stood out to me. Headline earnings rose 19 percent to 9.5 billion, with return on equity holding at about 31 percent. Fees, insurance, and business banking becoming increasingly important. The operating franchise, I guess, remains strong, but the investment question is how much future growth investors are already paying for. As you said, about 10 percent off highs, after Thursday's close, it's actually closer to 15 percent below its high, at around 4,188 rand. That improves the entry price, but at roughly 26 times the last 12 months headline earnings, at almost eight times the book value, it still needs sustained growth to justify the premium. I would describe the valuation as more reasonable rather than compelling at this stage.

Simon Brown (3:36)

I get your point.

As you say, it came under pressure again yesterday. I don't think it's ever potentially necessarily cheap. It's that sort of stock. It's always going to be expensive. If we look more broadly across banks, if we go back to January of last year, banks were cheap. They were all on price to books of around one times. Standard Bank and First Randev have moved significantly. Are you seeing value in the sector more broadly now that we've had numbers from, I think everyone coming through, I think F&B is the only one not yet.

Danie Dörfling-Kruger (4:05)

Yeah, I think if we're answering, I mean, what is the better value amongst the banks? I mean, on a consistent trailing headline earning basis, Apsa is around seven times, NetBank around eight times, with gross dividend yields close to eight percent. Capitec is around 26 times with the yield of nearly two percent. So that's a substantial difference in the price of current earnings. So for Apsa and NetBank, the investment case depends on sustainable dividends and improved returns. I think with obviously the rates rising, there are effects in both directions. Higher rates improve the income earned and low cost deposits, but also increase the funding costs and make repayments harder for borrowers. So with the repo rate at 7.25 at the economy having contracted in the second quarter, I would focus on earnings after credit losses. The outcome will differ between banks.

I think the main point is, and somebody might ask, is first-rands UK motive finance problem now behind it, because that's one of the main issues in terms of investing in that space. And I think a substantial provision has been made, but the final outcome remains uncertain. If you look at normalized earnings, continued earnings grew at about 13% to 44.5 billion Rand, with 24.9% return on equity. So those figures just show you the strength of the continuing franchise. They don't settle the ultimate redress bill or mean the planned UK exit has been complete. So, essentially, I think there isn't one growth rate that the share price or that proves what the investors expect. And one thing that could be useful in evaluating whether the sector is investable is looking at, again, the value amongst gross dividend yields and I guess the headline earning basis.