Capital Appreciation Projects Growth in POS Terminal Market Amid Rising Digital Transactions

In a forward-looking assessment of the financial technology landscape, Capital Appreciation (Capprec) has projected a steady increase in demand for point-of-sale (POS) devices over the next three to five years. This comes on the back of the expanding preference for card payments in South Africa's consumer market.

Capprec's payments division recently reported an impressive 24% surge in annuity revenue for the six months leading up to September 2023, highlighting a robust demand for payment-related software solutions, which resulted in a 35% jump in transaction-related income.

Notably, the sales of payment terminals fell short of initial projections. Economic challenges and consumer hesitancy led customers to temporarily postpone new terminal purchases, with some opting for leasing options instead. Despite this, the company noted a favorable uptrend in income from rental terminals, with the total terminal estate climbing by 9%.

In a conversation with Business Day, Capprec's joint CEO, Michael Pimstein, enlightened that the increased rentals indicate a spread of income across rental terms, such as 36 or 48 months, as opposed to one-time payments from direct sales.

Nevertheless, this trend has influenced the revenue for the payments division, which saw a decrease of 16.7% to R265.3 million. Despite this downturn, Pimstein remains optimistic about the continued demand for POS terminals.

Capprec is widely recognized for its range of payment terminals, including sophisticated card machines, and the backend systems that support these devices. Their technology extends to enhancing the digital platforms of banks and other financial institutions with features such as loyalty programs and prepaid vouchers.

Pimstein underscores the transformative shift from cash to digital transactions across Africa as a significant growth area for the terminal market. There's a particular focus on mobile payment devices, especially the versatile Android terminals, which are gaining traction amongst consumers.

Additionally, the transition from older 2G and 3G network technologies to the more advanced 4G and 5G, expected to render many existing terminals outdated, presents a sales opportunity for the company as these devices would potentially require replacement.

In the face of a dip in operating profit, the fintech group maintained its interim dividend at 4.25c per share, identical to the previous year. Although the company experienced a 3% increase in gross revenue, reaching R554.2 million, there was an 8% decline in their earnings before interest, tax, depreciation, and amortization, which stood at R126.9 million.

However, brighter spots included a 108% leap in headline earnings to R80.6 million, partially benefited from the recent acquisition of Dariel Solutions alongside other positive financial activities.

Capital Appreciation ended the period with a robust cash flow from operations, which was recorded at R159.9 million, marking a 55% increase year-over-year.

Since its inception on the Johannesburg Stock Exchange as a special-purpose acquisition company in 2015, Capprec has engaged in strategic acquisitions, strengthening its position in the fintech industry. These acquisitions include African Resonance, Dashpay, and Synthesis Software Technologies, among others.

As part of its expansion strategy, Capprec recently acquired additional stakes in technology groups and holds significant interest in the government messaging platform GovChat, which consolidates its foothold in the digital solutions space.

Email: gavazam@businesslive.co.za