FinTech group Capital Appreciation’s two divisions attracted new clients, renewed long-term contracts, diversified revenue sources, and grew market share in the six months to September 30, its directors said yesterday.
Earnings per share and headline earnings per share declined by 8.3% to 5.94 and 5.96 cents per share, respectively. The interim dividend increased by 5.9% to 4.50 cents a share. Director’s are optimistic about second-half prospects.
Alan Salomon, a founder of the company and chief financial officer who retires at the end of this month, said in an interview yesterday that second-quarter trading, following the national election, had markedly improved. This came after the first quarter was affected by low business confidence, with businesses postponing major capital expenditures.
“We had a small decline in earnings, but you have to look deeper into the numbers. The pipeline of new work is very encouraging. A strong balance sheet means we are also still on the hunt for a suitable acquisition, although we will only invest judiciously in a sustainable investment,” said Salomon.
“We are encouraged by the healthy pipelines that have been building up rapidly since the national elections. We are well-positioned to benefit from this increase in activity. In addition, the various tenders that the Payments Division has recently secured will significantly benefit the performance of this division and the group in the future,” CEO Bradley Sacks said.
Capital Appreciation also evolved its revenue mix with new products and services across more sectors and regions, creating growth opportunities.
Gross revenues increased by 10% to R611.5 million, while earnings before interest, tax, depreciation, and amortisation (Ebitda) declined by 3% to R113.8m.
The Payments segment grew Ebitda by 17.8%. Group results were adversely impacted by underutilised capacity in Software.
The Payments division increased revenue by 18.5% and Ebitda by 17.8%, benefiting from good terminal sales and rental income, which were up 26% and 70%, respectively.
The division saw good traction in revenue diversification, particularly with software-as-a-service initiatives. Two major multi-year contracts were secured at the start of the second quarter, but income from these was incremental and would begin to contribute to earnings in the second half and beyond, said Salomon.
The Software division’s top line increased by 2.4%, after 9.7% revenue growth in South Africa was offset by an 18.6% decline in revenue from Software’s international initiatives, as a significant long-term contracts resourced from South Africa reached maturity.
Skilled labour capacity in the Software division was underutilised with the cessation of three contracts in Singapore, which affected profitability. However, it was due to the financial strength of the group that nobody was retrenched during this period, allowing the retention of skills for when work picked up again, said Salomon.
The Synthesis and Dariel divisions experienced monthly improvements in resource utilisation since the period end, which was expected to lead to a measured recovery in profitability.
There was a significant increase in deferred revenue from long-term contracts for which the money had already been received, but only a portion had been recognised in the reporting period. Deferred revenue amounted to R50.7m (2023: R21.9m), the majority of which was in the Software division.
Capital Appreciation's operating companies remain asset-light businesses, generating positive cash flows. The unencumbered balance sheet held R419.7m in cash available at November 30, 2024, to fund organic growth, acquisition opportunities, investments, and further share repurchases.
“With substantial financial strength, we are well-positioned to pursue organic growth opportunities and consider additional complementary acquisitions,” said Sacks.
He added that Capital Appreciation focuses on creating sustainable value for its shareholders. In addition to the increase in share price, they have returned R662m, or 49 cents per share, to shareholders in the form of dividends since 2017.
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