Diamonds & Dogs: Stock Market Insights for October

South Africa’s financial markets continue to show stark contrasts between winners and laggards. In this month’s Diamonds and Dogs column, we analyse two prominent names on the JSE — Capitec Bank and Pick ‘n Pay — and what investors can learn from their divergent paths.

Buy Recommendation – Capitec Bank

Exceptional Growth and Profitability

Capitec Bank’s success story in the South African financial sector remains extraordinary. In the first six months of FY26, headline earnings surged 26%, while return on equity (ROE) jumped to 31% — a level that cements Capitec’s position as a top performer.

Expanding Beyond Traditional Banking

Future growth depends on Capitec’s ability to scale beyond its core banking operations. The company is driving innovation through:

• Cross-selling of value-added services
• Insurance and fintech growth via Capitec Connect
• A 59% surge in business banking, one of its fastest-growing segments
• With over 25 million clients, Capitec has unmatched scale and data-driven opportunity to deepen customer relationships.

A Core Long-Term Holding

Capitec’s management continues to execute strategically and uncover new revenue streams. For investors, Capitec shares represent a solid long-term core holding in any South African equity portfolio.

Sell Recommendation – Pick ‘n Pay

Weak Earnings and Poor Execution

Pick n Pay’s latest trading update offers little encouragement. The retailer expects a 28–34% decline in headline earnings per share (HEPS) for the first half of the current financial year, a worrying continuation of its downward trend.

Turnaround Plan Faces Immense Risk

The group’s plan to convert underperforming stores into Boxer outlets aims to break even only by FY28 — an eternity in investment terms.
Without Boxer, Pick n Pay’s survival would be questionable.

Mounting Losses and Market Share Erosion

The retailer recorded a R3.2 billion net loss in 2024, continues to lose market share, and faces growing consumer dissatisfaction. A R12.5 billion recapitalisation via the Boxer IPO and rights issue only temporarily alleviated financial strain. Given high execution risk and chronic underperformance, Pick n Pay remains a strong sell.

Extraordinary Profits From Ordinary Shares, Winning Stock Market Strategies

If you are not happy with your portfolio performance or would like a second opinion, please do not hesitate to contact Fenestra for a free, independent, objective and confidential review of your portfolio. William Meyer – 0796244031