Capital Appreciation benefiting from increasingly diverse revenue streams

The high quality of their terminals, a growing market as consumers relied more on POS devices to pay rather than cash. SUPPLIED.

The high quality of their terminals, a growing market as consumers relied more on POS devices to pay rather than cash. SUPPLIED.

Published Jun 6, 2024


Fintech group Capital Appreciation has continued to attract new customers and grow market share and new products and sectors as more diversified income streams saw gross revenue up 19% to R1.2 billion.

The group maintained its unbroken dividend growth for the seventh consecutive year, declaring a total dividend of 10 cents per share for the year, an increase of 21% on the prior year. Earnings before interest, tax, depreciation and amortisation (EBITDA) increased by a substantial 53% to R252.8 million.

Chief financial officer Alan Salomon said in an interview that the strong annual performance was in the context of the continuing weak and uncertain South African economy that had, for instance, temporarily slowed information and technology spending decisions by companies in the group’s first half.

The results showed the group was resilient and demand for its products and services remained healthy, he said.

The results benefited from improved operational performance, higher finance income, a reduced expected credit loss raised for GovChat, and a first-time contribution of Dariel Group that was acquired in July 2023 and which had performed according to expectations, he said.

EPS and HEPS increased by 84% and 83% to 13.59c and 13.61c per share, respectively.

The Payments division increased revenue 7% to R562.8m and annuity income by 28%. Annuity income now comprised 61% of total income in the Payments division, auguring well for increased resilience and less cyclicality from terminal sales in the future. Point-of-sale (POS) terminals in customers’ hands increased by 9% to 357 000. Notably, the size of the leased terminal estate doubled from the prior year.

The high quality of their terminals, a growing market as consumers relied more on POS devices to pay rather than cash, the conversion of 2G and 3G devices to 4G and 5G in the next few years, and new clients and customers obtained by the group all pointed to a good runway for this business, said Salomon.

The Software division encountered unexpected challenges due to bench overcapacity when the commencement of some large client projects was delayed.

Despite delivering several successful software projects, acquiring new customers, and receiving numerous accolades, the division’s financial performance did not meet expectations and EBITDA fell 11% to R77.8m as the higher staff costs caused a significant rise in operating expense.

Software divisional revenue increased by 31% to R618.8m. Services and consultancy fees accelerated by 44% due to the increased demand for cloud and digital projects, while licence and subscription fees increased by 20%.

Salomon said remedial plans were implemented in the latter part of the year to reduce costs and improve financial performance and this was expected to be reflected in the 2025 financial year.

He said the International division, a recently formed business in the Netherlands aimed at broadening the group’s geographic reach and clients, was not yet profitable, but was a long-term project for the group and was also exposing the group to new and emerging technologies and global best practice.

The group spent R123m in the past year on acquisitions, rental assets, intellectual property development, new software solutions and further funding of its associates. The divisions were asset-light and highly cash-generative, with cash generated from operations increasing by 75% to R319.7m and resulting in available cash resources of R467.4m.

This would fund organic growth, acquisition opportunities, investments, as well as further share repurchases.