The group is betting big on a digital future. From Moneyweb.
The recent announcement that the current 2G and 3G telecoms networks in SA will be shut down by 2025, means banks will have to upgrade their 3G payment devices.
That’s an opportunity that has not been lost on JSE-listed fintech group Capital Appreciation, which earns a large chunk of its revenue from the sale of payments devices.
The life cycle of terminals is becoming shorter as new functionality and technologies are added to these devices. Companies are investing big in artificial intelligence to get a better grip on micro shifts in customer habits and tastes, and payments technology is at the forefront of that move.
The post-Covid landscape has seen a few other shifts that radically alter the way people interact and spend. As people spend more time online, there’s more demand for contactless operations and data analytics that map the customer experience in real time.
Another trend that positions the group for growth is the inexorable move away from cash to digital payments. Africa remains something of a holdout, as the rest of the world moves towards digital payments. “Replacing cash is an opportunity for us,” says Alan Salomon, chief financial officer at Capital Appreciation.
“In terms of placement and delivery of devices, the highest percentage growth in terminal placement is Africa and the Middle East.”
Read: Capital Appreciation rides the digitalisation wave at home and abroad
Card transactions (both credit and debit) are expected to grow about 35% between 2020 and 2024, which should spice the demand for electronic payment terminals.
Source: GlobalData’s South Africa Cards & Payments, May 2021
The group’s primary revenue generator is payments solutions, followed by software, with a third division – international – now starting to come up to speed.
Capital Appreciation’s results for the six months to September 2022 show a terminal ‘estate’ (number of terminals in clients’ hands) in excess of 315 000 devices, up 22% year-on-year, though revenue from terminal sales at R192.7 million dropped by 8.5% against record sales in the prior period.
There was a period of catch-up after the Covid shutdowns when terminal sales grew 68% in the prior comparable six-month period, but the latest figures show a much higher and stable range for these sales.
The software division, helped by two recent acquisitions, posted a revenue increase of 75.4% to nearly R220 million and a 57% jump in Ebitda (earnings before interest, tax, depreciation and amortisation) to R45.6 million.
Demand for cloud and digital services was up 51% over the period, with most of the division’s revenue coming from services and consulting fees. New client gains and geographical diversification contributed to the growth, with 28% of the division’s revenue now coming from outside SA.
The international division grew revenue almost 200% and now accounts for 12% of group revenue (2021: 5%) – a percentage that is likely to grow in the coming years.
An interesting feature of the results is the more than doubling in expenses to R108.8 million, from R46 million in September 2021. Most of this was growth-related, the benefits of which will become more evident in the medium term.
The biggest chunk of this expense increase went to new hirings, as well as new acquisitions and infrastructure upgrades.
GovChat
The group announced it has decided to impair its R56.3 million loan to 35% owned GovChat, a tech platform that facilitates engagement between citizens and government. This is a non-cash charge with no impact on headline earnings, but it did knock 4.60 cents off basic earnings per share.
GovChat is embroiled in a dispute that involves Facebook (Meta) and WhatsApp, which are accused of anti-competitive behaviour. The matter was referred to the Competition Commission earlier this year amid claims that Facebook decided to offboard GovChat and #LetsTalk from the WhatsApp Business Application Programming Interface (WhatsApp Business API).
“GovChat believes the Competition Commission will prevail and that GovChat will ultimately be awarded substantial monetary damages because of Meta’s actions. This award is expected to far exceed the value of the group’s loan exposure to GovChat and will likely be more than sufficient, to ensure the loan’s repayment, over the long-term,” says Capital Appreciation in its financial commentary for the period.
