Capital Appreciation: eye on the prize

The Capital Appreciation Group (Caprec) investor presentation shouts it from the rooftops on one of the early slides: “The Covid Accelerant: Everything Digital” – I think that sums it up rather well. Caprec is swimming in the right streams by focusing on verticals like payments and software.

And unlike US-based tech stocks that benefitted from the same trends, investors have been able to buy shares in Caprec at far more modest multiples. This is a good thing, obviously, with the local company keeping its eye firmly on the prize in its chosen verticals.

There are now over 277,000 payment terminals in the hands of clients, having grown at a compound annual growth rate (CAGR) of 41% since 2017. The group believes that there is a market opportunity of more than 800,000 payment acceptance devices just in South Africa, let alone the rest of Africa. The group is delivering other innovations around payments, ranging from smartphone solutions through to a lay-by platform (a major global trend).

The Synthesis software and cloud business was awarded the Partner of the Year 2021 (Sub Saharan Africa) by Amazon Web Services, which is a major achievement. The business contracted R300 million in new business and concluded the acquisition of Responsive Group.

Internationally, Caprec has invesed in Regal Digital and launched new offices in Amsterdam.

Turning to the financials for the year ended March, terminal sales were up 54% and software revenue increased by 34%. International income was up 33%. EBITDA margin improved from 27.9% to 30.3% despite headcount increasing by 24%.

These are great numbers that culminated in headline earnings per share (HEPS) up 30% to 13.40 cents and dividends per share up 36% to 7.50 cents.

Interestingly, Caprec’s GovChat platform has been at the centre of a dispute with Meta (Facebook), after the latter tried to remove GovChat from its platforms. GovChat complained to the Competition Tribunal and the Competition Commission was asked to investigate. The Commission has recommended that a fine of 10% of Meta’s South African revenues be levied for this!

GovChat continues to be on the platforms. This is the business that raises a few eyebrows, with a cumulative loss in the past two years of over R25 million.

Capital Appreciation Group has grown its dividend every year since 2018 and has paid 26.25 cents per share in cumulative dividends over that period. The share price closed at R1.84, taking the year-to-date performance to 3.4%.

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