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Capital Appreciation rides the digitalisation wave at home and abroad

Recent international expansion will diversify the revenue stream.
The group has no debt and net cash in excess of R520m, giving it ample ammunition should a suitable acquisition present itself. Image: Akos Stiller/Bloomberg

Fintech group Capital Appreciation’s international expansion moved up a notch over the year to March 2022 with the launch of a new business unit headquartered in the Netherlands, aimed at broadening the group’s geographic reach.

The company’s share price is up about 3X since the onset of the Covid lockdowns, and appears warranted in light of the latest results, showing revenue up 34% to R831 million and headline earnings per share increasing 30% to 13.4 cents.

The payments division grew revenue by 34% to R533.8 million, and Ebitda (earnings before interest, tax, depreciation and amortisation) by 55% to R218.4 million.

The group’s primary revenue generator is payments solutions, followed by software, with a third division – international – now added to the mix.

The previous year’s revenue and profits took a knock, due in large part to Covid-related deferment in capex spending, but there’s no sign of that in these results.

“At the onset of Covid, some customers backed off on capex spending, but we are now seeing a lot of that come through,” says chief financial officer Alan Salomon.

Joint CEO Bradley Sacks says the group now has 277 000 terminals in the hands of clients, up 28% on the previous year.

A point of pride for the group in 2021 was its selection as an Amazon Web Services consulting partner, says joint CEO Bradley Sacks. Image: Supplied

Terminal sales increased by 51% over the year due to strong demand for Android terminals, and has grown at a compound 41% a year since 2017. Sacks says the group was able to satisfy the demand for terminal hardware despite global semiconductor and supply chain challenges.

A point of pride for the group was its selection as Amazon Web Services’s consulting partner for sub-Saharan Africa in 2021, added Sacks.

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Terminal orders and transaction income were up on the previous year, contributing to a widening in earnings margins. The group also reported sizeable increases in cloud-based and digital consulting revenue and third-party software and hardware sales.

Revenue and earnings from both payments and software are now well above pre-Covid levels, an indicator that the digitalisation wave that took flight in the last two years is back.

Revenue from existing international customers was up by about a third, but this will be bolstered in the coming year by the launch of the Netherlands-based international division.

The group subscribed for 20% of Regal Digital BV on May 13, comprising a Web 3.0 consulting business called Firelava, and Flamelink, a software-as-a-service (SaaS) solution for Google’s Firebase.

Source: Capital Appreciation 2022 results presentation

The group has no debt and net cash in excess of R520 million, giving it ample ammunition should a suitable acquisition present itself.

Operating expenses increased about 24%, with much of this being payroll costs associated with the group’s service and product expansion. Most of these new staff are employed in software services.

The group has a forward pipeline of sales of around R300 million heading into the new financial year and can look forward to a more diversified customer base and revenue stream in the 2023 financial year.

It has maintained an unbroken dividend record, returning R370 million, or 26.25 cents per share to shareholders in the form of dividends.

“The large pipelines in all our businesses are indicative of the strength of a longer-term global digitalisation trend,” says Sacks.

The group’s Synthesis business signed up new customers in financial services, telecoms, retail, healthcare services and contact centres, with a robust sales pipeline into 2023. The Halo Dot tap-on-phone technology has generated strong interest from local and international markets, attracting multiple new customers.

Capital Appreciation also acquired the Responsive Group, which designs and develops digital applications for clients in South Africa, the US, Europe, and UK.

Source: Capital Appreciation 2022 results presentation

Listen: Capital Appreciation CFO Alan Salomon on FY results (or read the transcript)

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