Capital Appreciation expects strong demand for point of sales machines

Fintech group Capital Appreciation (Capprec) anticipates that its business of selling point-of-sale (POS) devices and card machines will continue to expand for the next three to five years, helped by the ongoing growth of card payments in SA.

On Monday the group’s payments division reported a 24% rise in annuity revenue in the six months to September 2023. The demand for payments-related software solutions accelerated in the period, resulting in a 35% increase in transaction-related income.

Payment terminal sales fell short of expectations, as customers chose to temporarily delay new terminal orders due to weak consumer confidence and unfavourable economic conditions, and some clients chose to acquire new terminals through leasing. The group said the latter trend had a favourable effect on its business of renting out terminals, with income doubling in the period. The total terminal estate grew by 9%.

Capprec’s joint CEO Michael Pimstein told Business Day that increased rentals mean income will be spread over a rental term, 36 or 48 months for example, as opposed to the one-off lump sums that come from a traditional sale.

The lower POS terminal sales resulted in revenue for the payments division decreasing by 16.7% to R265.3m.

Pimstein and his team are confident that demand for POS terminals will continue in the coming years. 

“Strategically, we believe that there is a very good runway for five years for the mobile payment device as we know it. That is both for the Linux range and Android. The Android terminal is an especially capable payments solution and is proving very popular.”

Capprec’s business includes selling payment terminals such as point-of-sale devices, including debit and credit card machines.

It also provides the back-end systems that allow these devices to accept payments, and the technology that banks and other financial services companies use to add more features to their digital platforms, including loyalty programmes and prepaid vouchers.

“And as we look to the African continent, we see the much stronger changeover of cash usage from people not ordinarily banked into digital transactions. We see a significant opportunity for terminal growth. We have seen the position of terminals growing all over the world, except in Europe, in recent years,” said Pimstein. 

The group also anticipates sales will be boosted by the move from old 2G and 3G technologies to 4G and 5G. 

“There are currently a huge number of terminals in the South African market that are 2G and 3G. While there may be an extension to the government gazette to render these machines obsolete, our anticipation is that this will happen, and a huge number of terminals will be replaced anyway,” Pimstein said.

The cash-flush fintech group declared the same interim dividend of 4.25c a share as last year, despite a drop in operating profit. 

Capprec reported gross revenue growth of 3% to R554.2m, while earnings before interest, tax, depreciation and amortisation declined by 8% to R126.9m.

Headline earnings — which strip the effects of one-off financial events — increased by 108% to R80.6m, partly benefiting from a three-month contribution from recently acquired Dariel Solutions, higher finance income and a reduced expected credit loss raised, after tax, for GovChat of R9.4m.

The group closed the period with cash from operations of R159.9m, up 55% on the prior year.

Capprec is no stranger to acquisitions since listing as a special-purpose acquisition company on the JSE and raising R1bn through a private placement of shares in late 2015.

Since then, it has acquired 100% of African Resonance, Dashpay and Synthesis Software Technologies, and a 17.45% interest in Resonance Australia. It also has a 35% stake in government messaging platform GovChat.

During its most recent financial year, the company acquired 100% of Responsive Technology group and Responsive Digital, and 71% of Rethink Digital Solutions. Responsive Digital designs and develops digital applications for clients in SA, the US, Europe and the UK.

gavazam@businesslive.co.za