Ahead of its annual general meeting today, fintech firm Capital Appreciation has reported sturdy performance in the past five months, backed by strong demand for electronic payments, software solutions and cloud services.
The JSE-listed Capital Appreciation updated shareholders ahead of the all-important investors’ meeting, saying the long-term trend towards digitalisation continues and this has resulted in high demand for its services.
This is the company’s first update to shareholders in the five months since March, when Capital Appreciation released fiscal 2022 results.
Capital Appreciation says while it is not immune to the consequences of the economic challenges, the positive trajectory of demand for its products and services continues to propel the group forward and present opportunities for growth and expansion.
“The demand from local and international customers for the products and services in the software division has continued in the past five months, leading to notable growth in service and consulting fees and sales of hardware security modules (HSM),” says the company.
“HSMs are used for enterprise encryption and to protect payment card PINs and contactless payments. Demand for cloud and digital services continues to grow, and the areas of intelligent data and managed services are showing strong progress.”
Further, Capital Appreciation says, in anticipation of strong growth, its software division has increased its headcount by 50% year-on-year, which includes a substantial intake of recently-qualified graduates.
The company notes: “The division has also materially increased its marketing and business development spend, particularly on its tap-on-phone Halo Dot initiative, which continues to make good progress and is achieving notable interest both in South Africa and internationally.”
Band together
Turning to other business units, Capital Appreciation says demand for point-of-sale (POS) terminals continues to be robust, particularly as the “group’s addressable market” increases.
“Economic challenges, as well as the increasing preference for the additional functionality of the Android devices at lower price points, are gradually shifting the terminal sales mix in favour of these terminals.
“Maintenance and support fees continued to grow modestly, as customers elected to monitor the operating costs of the new range of Android devices before entering into long-term maintenance and support contracts.”
The company says while it continues to experience delays associated with global semiconductor shortages and supply chain issues, a positive consequence is the greater awareness by customers of the benefits of balanced purchases on a more even basis across the year.
“We are hopeful that this trend will persist in years to come and help reduce the lumpiness in terminal sales previously experienced. The replacement lifecycle of terminals is also gradually becoming shorter, as financial institutions and corporate customers replace their ageing terminal estates sooner to take advantage of improvements in technology, more functionally-rich solutions and to comply with international card specifications and certifications.”
These trends, the company says, all point to consistent demand for POS terminals over the medium-term.
“Transaction-related income from terminals continued to generate pleasing growth in this period. Shareholders are reminded that terminal sales in the first half of the 2022 financial year increased by 68% due to substantial and lumpy investment in terminals as companies emerged from the COVID-19 pandemic.”
Notwithstanding the current performance, Capital Appreciation cautions that in view of the current revenue mix trends and continued supply chain challenges, it is unlikely the payments division will achieve the same level of terminal sales in the 2023 interim period.
“We nevertheless expect satisfactory growth in the overall value of terminal sales for the full 2023 fiscal year.”
Capital Appreciation’s closed period will commence on 1 October and the group says it intends to release its interim results for the six months ended 30 September on or about 29 November.
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