Capital Appreciation positioned itself for longer-term growth

Capital Appreciation says the intention is to continue to “drip feed” fund GovChat.

Capital Appreciation says the intention is to continue to “drip feed” fund GovChat.

Published Jun 7, 2023


Capital Appreciation was experiencing strong demand as corporate digitalisation continues and it invested heavily in the past financial year to build a long-term growth runway, its executives said yesterday.

The annual dividend was raised 10% to 8.25 cents per share for the year to March 31. This was even though headline earnings per share fell 44.5% to 7.44c from 13.40c.

Earnings before interest tax depreciation and amortisation fell 6.3% to R235.7 million. Revenue increased 19.7% to R995.1m, benefiting from good growth in annuity-based payments revenue and growth in cloud-based and digital consulting services, security hardware sales and third-party software licence fees.

International revenue was up 177% to R150.9m year-on-year. The International division was launched in 2022 with offices in the Netherlands and had landed two “significant” contracts. New appointments were made to focus on expansion in Europe, UK and the Middle East. Non-South African revenue comprises 15.2% of group revenue, up from 6.6% only 12 months ago.

The short-term earnings were impacted by substantial investment into future revenue opportunities – some R108.8m was reinvestment in future growth initiatives, the executives said in a telephone interview.

In addition, the decline in headline earnings per share was directly due to the expected credit loss provision raised of R70.8m, for the loan to 35%-held GovChat.

CEO Bradley Sacks said a well-capitalised balance sheet, robust cash flows and significant cash resources meant they could take advantage of big organic growth and acquisition opportunities.

Chief financial officer Alan Salomon said that following a matter between Meta and GovChat that was with the Competition Tribunal, ongoing talks with the government for payment for the use of the GovChat platform, and the fact that GovChat was put into business rescue at the end of last year, the intention was to continue to “drip feed” fund GovChat.

This was because there were opportunities for the platform outside its current use as a messaging platform between government departments and citizens, such as interest being shown by the UN in using the platform, as well as an anticipated positive outcome for the group to the Meta matter, and to the negotiations with the government on payment.

In the Payments division, the terminal estate was up 18% to 328 000 in the past year.

The group’s divisions generated in R494.9m cash at year-end, which was another reason why the dividend was raised, said Salomon.

The group has, for the sixth consecutive year, declared unbroken, year-on-year growth in dividends.

Acquisitive activity increased in the past year. The Responsive group, acquired in March 2022, was successfully integrated, while in April 2023, the Dariel Solutions acquisition was announced, which had so far been approved by the Competition Commission.

The Payments division reported revenue of R524.8m, marginally (1.7%) down on a record prior year. Revenue growth was hampered by a changing product mix and a delay in terminal order volumes, but this was largely offset by a 24% increase in annuity-based revenue.

There was some “hesitancy” among institutions currently to replace new units, but this was expected to change by year-end, chairman Michael Pimstein said .

The 328 000 point of sale terminals in the hands of customers represented a 37% compounded annual growth rate since the business was acquired in 2017.

The Software division increased revenue by 58.1% to R469.9m and to fuel domestic and international growth, the division materially increased its headcount and marketing and business development spend and had continued to advance investment into its tap-on-phone Halo Dot initiative.