Capital Appreciation Reports Strong Results Boosted By Electronic Payments

Capital Appreciation
Brad Sacks Joint Chief Excecutive Capital Appreciation

South African FinTech group Capital Appreciation Limited (Capprec) today delivered strong growth for the six months ended 30 September 2020 boosted by ongoing acceleration in digital transformation and electronic payments.

Capprec said on Wednesday revenue grew by 15% to R323.7 million and EBITDA by 20.2% to R81.6 million.

The group’s headline earnings increased by 7.8% to R54.2 million. In the prior period, Capprec concluded and successfully executed a transaction that included the share repurchase and cancellation of 245 million shares. The lower number of shares in issue benefited headline earnings per share (HEPS), which grew by 29.7% to 4.45 cents per share. HEPS is South Africa’s main profit gauge.

The company rewarded investors with an interim dividend of 2.5 cents per ordinary share.

“The ongoing acceleration in digital transformation, electronic payments, and related advances has received further impetus during the pandemic” notes Bradley Sacks, joint CEO of Capprec.

 

“Capprec is ideally positioned to benefit from this evolution, with the appropriate skills, experience, and track record of innovation to assist our clients to implement and benefit from these technological advancements.”

Capprec is a financial technology company with proprietary and licensed platforms, solutions, products and applications targeted at the B2B market.  Its client base includes all major banking institutions in South Africa, as well as many niche banks, large financial services institutions and other financial services companies. In recent times, the company has also successfully diversified into the Retail, Telecoms and Healthcare sectors.

Payments division exploring opportunities for “Tap-to-Phone” contactless payment

The Payments division provides end-to-end terminal estate management and payment services.  Its customers include all of the major banks in South Africa, as well as a range of other financial institutions, retailers and other large corporate customers both in South Africa and elsewhere in Africa.

The division grew revenue by 15.6% to R215.3 million and increased EBITDA by 33.0% to R66.5 million and profit after tax by 54.4% to R47.3 million. Cash generation remained strong and bad debts low, with 99% of revenues being generated from blue-chip, well-capitalised clients.

More than 20 000 additional terminals were sold in the period, bringing the total number of terminals in the hands of customers to more than 202 000. Of these terminals, 155 000 have already been deployed, earning annuity-based maintenance and support service fees.

The division made good progress related to the supply of Android based terminals during the period. The Android terminals’ attractive functionality, price, and quality have been well received and some of these devices are already in the hands of merchants.

The Payments division will shortly commence engagements with existing and prospective customers, domestically and internationally, for “Halo”. Halo, developed by Synthesis, is a “Tap-to-Phone” contactless payment product for use on any Android device.

Services division eyes opportunities in AI and ML

Synthesis offers highly specialised software development, consulting and integration services, and technology-based product solutions to banking, financial institutions, retail, and telecommunications enterprises in South Africa and other emerging markets.

Synthesis increased revenue by 13.8% to R108.4 million, with services and consultancy fees increasing by more than 20%, due to the increased demand for Cloud and digital projects. EBITDA increased by 3.1% to R28.0 million and profit after tax by 2.1% to R18.0 million.

The new and in-demand area of Machine Learning/ Artificial Intelligence (AI/ML) is showing significant promise and Synthesis is currently providing these sought-after data science and data engineering services to several large financial services clients in South Africa.

Capprec provides development funding to GovChat, who offered valuable assistance to the Government in responding to challenges arising from the COVID-19 pandemic.  Synthesis developed the GovChat platform and won an award from AWS for social innovation and impact.

Targets complementary acquisition opportunities

Capprec continues to be highly cash generative. At the end of the period, the company held cash resources of R488.4 million, suggesting that cash represented 37 cents of the closing price of 95 cents per Capprec share on 30 September 2020.

“Capprec has a well-capitalised balance sheet, strong operating cash flows, and the cash resources necessary to continue to invest in infrastructure and people, in order to take advantage of the opportunities presented to the group,” the company informed investors.

Capprec said that the company’s cash resources will be applied to fund anticipated organic growth and to pursue or supplement the cost of new complementary acquisition opportunities.

“Given the appropriate circumstances, the company will also continue to consider the repurchase of shares in the market.”

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