National Fund for Municipal Workers

Viceroy report on Capitec and the effect on the NFMW

Viceroy Research recently released a report in which it alleges that Capitec has been engaging in what it called "reckless lending practices". As a result, Capitec’s shares were trading down by as much as 20% on Tuesday 30 January 2018.

Capitec, who has been one of the best performing shares on the JSE over the last ten years, responded by saying that it had not been approached by Viceroy for insight into its business and “none of their allegations had been discussed, tested or verified with their management.”

The severe market reaction reflects the recent trend (after reports released in the media by Viceroy) implicating various South African companies in wrong doing and bad management practices, including the likes of Steinhoff and Aspen.

Whether the Viceroy report is true or not, it creates a huge amount of uncertainty for investors, until the facts in the report can be verified (or not). By close of business on 30 January, the Capitec share price almost recovered completely and was only down by 3%.

Minimal impact on the NFMW portfolios

The NFMW had very little exposure to Capitec shares, and the impact of the share price drop will have a minimal effect on its asset base and returns.

At the end of December, the Fund had R28m exposure (0.49% of domestic equity) to Capitec through Allan Gray (0.8%) and Mazi (2.5%). Coronation and Denker have no exposure to Capitec. This R28m exposure is relative against the total fund assets of more than R15 000m (R15 billion). The impact on the life stage portfolio will therefore be minimal and roughly estimated to be as follows on the various portfolios: 0.008% for the Aggressive Growth, 0.006% for the Capital Growth and 0.005% for the Stable Growth portfolio, if the Capitec share price drop remains 3% (share price drop on 30 January 2018).

Whether the Viceroy reports are true or not, be assured that your equity portfolios remain well diversified to always weather these types of storms.

Yours sincerely

Sean Samons

Principal Executive Officer