01 June 2020
Capital Appreciation sees opportunity in reduced use of cash
Business Day

Mudiwa Gavaza

Bucking the trend of JSE-listed companies predicting doom and gloom, fintech group Capital Appreciation (Capprec) says it is well positioned to grow its business given the increased uptake of digital payments driven by the Covid-19 crisis. The group has also declared a dividend where others have held off to preserve cash.

Capprec provides technology that banks and other financial services companies use to add more features to their digital platforms, such as integrating loyalty programmes and the sale of prepaid vouchers. Its blue-chip clients include the big five banks as well as Discovery Vitality, TymeBank and a number of asset managers. The investment holding company in which Patrice Motsepe's African Rainbow Capital (ARC) owns a minority stake, also sells payment terminals such as point-of-sale devices to banks and major retailers. It provides the back-end systems that allow these devices to accept payments. Joint-CEO Bradley Sacks told Business Day the coronavirus pandemic has forced businesses and banks to offer contactless payment options and services. He said it's a "good trend for us". "Our internal systems and business have continued unaffected," he said, explaining that the company's use of cloud computing had kept the lights on at Capprec without much disruption during the lockdown. He said Capprec has about 185,000 payment terminals in service, 80% of which already have contactless functions such as QR codes, that banks and other financial services providers can easily activate.

The group said that SA's operating environment remains challenging, but that "demand for new technologies in the financial services, retail and healthcare sectors (and others), where group companies have differentiated expertise, is accelerating at a rapid rate". Capprec has raised its total dividend for the year to March by 17.6% to 5c per share. Headline earnings rose 14.2% to R143.2m, while the group reported that it had sold 58,000 payment terminals during the year, raising the number in the hands of merchants by 32.1%. "Generally a good performance with a strong second half, restoring growth for the full year," said Irnest Kaplan, MD of Kaplan Equity Analysts.

In the half year to September, Capprec reported a 10.7% decline in revenue but blamed this solely on delays in getting some of its imported payment terminals, adding that it was a reflection of dwindling demand. Kaplan said the payments division had a strong recovery in terminal sales in the second half after delays in the first half. "Good to see the transaction revenue portion continuing to grow well, albeit small," he said. Capprec's payments division generated revenue of R506.2m, compared with R469.9m in 2019, a 7.7% increase.

The services division comprising its software business, Synthesis, made R195m in revenue, a 41.5% rise on the R137.8m reported in 2019. "I think Capital Appreciation will do well over the next few years," said Kaplan. Shares in Capprec closed the day 1.27% lower at 78c.

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