By Pritu Maka
Capital Appreciation (CTA) is a key player in the South African FinTech sector. The company provides payment infrastructure and solutions to financial institutions, emerging payment service providers, the hospitality industry, and the retail sector, as well as a transacting platform and transaction processing services primarily focused on business-to-business (B2B) commercial and payment activity. Leadership's forward-looking approach on investing in and growing businesses that provide innovative and disruptive solutions to financial institutions and other enterprise clients has underpinned the group's numerous strategic acquisitions and investments through the years.
The group operates through three main segments, namely Payments and Payment Infrastructure and Services ("Payments"), Software and Services ("Software") and an International segment.
The Payments segment (~55% of group revenue) is an aggregation of African Resonance, Dashpay and Halo Dot - businesses that focus on payment product and infrastructure solutions.
Software (~44%) provides consulting, integration services, and technology-based product solutions. This segment includes Synthesis, the Responsive group and the Dariel group.
The newly incorporated International operations (~1% of sales) include foreign subsidiaries and investments, specifically an offshore company in the Netherlands, Synthesis Labs.
Dynamic operating market
The FinTech sector is experiencing significant growth both globally and locally. The sector is highly competitive, with both established institutions and start-ups contending for market share. CTA's continuous innovation and differentiation of its offerings has helped the group establish and maintain its competitive advantage.
By primarily serving financial institutions and enterprise clients, the group operates in a less volatile and more stable market compared to direct-to-consumer businesses. As such, their solutions are often mission-critical, leading to 'sticky' client relationships (i.e. high retention). Large enterprises, such as retail chains, hotel groups, and healthcare networks, require integrated POS systems that support high transaction volumes, multi-location management, and advanced analytics. As such, the broad shift toward hybrid or full cloud-based solutions for centralised data and real-time insights is higher. The ongoing digital transformation in banking, payments, and financial services, with key requirements for security, compliance, and scalability, also creates a particularly important growth vector.
POS market dynamics
In South Africa, digital card payments per capita have increased to ~118 payments in 2024 and remains elevated compared to other fast-growing nations in broader Africa such as Nigeria (51), Egypt (24.2), Morocco (10.9), and Kenya (5.3). This reflects a mature and growing digital payments ecosystem driven by a wide-spread shift from cash to debit card (physical and virtual) usage, fast adoption of contactless and mobile payments (urged by the Covid-19 pandemic), and expanding POS infrastructure. In turn, the POS market is undergoing a significant shift, driven by digital innovation, changing consumer patterns and business responses to macroeconomic developments.
The expansion in retail, hospitality, and healthcare sectors, to which CTA maintains exposure, with increased adoption of mobile and contactless payments, as well as government initiatives promoting cashless transactions have been strong underpins. The average reinvestment cycle was previously between five to seven years, depending on the sector, with large retailers and franchises following more structured cycles aligned with broader IT refresh schedules or store refurbishments. However, growing shifts in payment technology and fintech support has shortened the cycle to between three to five years as devices become more affordable and bundled with value-added services. Moreso, legacy on-premise systems are being phased out in favour of cloud-based POS that offer real-time analytics, remote access for software upgrades, and lower maintenance.
Management
CTA's leadership team includes highly regarded individuals including Executive Chairman, Micheal Pimstein (former CEO Macsteel), CEO, Bradley Sacks (former MD at Bank of America), as well as CFO, Sjoerd Douwenga (former Metair CFO), and independent non-executive director, Victor Sekese (CEO of Sizwe Ntsaluba Gobodo).
Overall, leadership's performance since the company's founding and subsequent acquisitions has been, by most measures including financial performance and strategic execution, highly successful and disciplined.
The team has a proven track record of identifying and successfully integrating key acquisitions, including African Resonance, Dashpay, Synthesis, and more recently, Dariel Group. Management has shown a disciplined approach to capital allocation, ensuring acquisitions are concluded at fair value (not overpaying for assets) and deploying capital to investments with high growth potential. The business has also maintained a strong, ungeared balance sheet, which is rare for a growth-oriented company. CTA has consistently invested in and developed innovative FinTech solutions, with a focus on cutting-edge technology — such as Dashpay's software POS (SoftPOS ) which utilises Halo Dot as its core software engine and Synthesis' expertise in cloud, AI, and regulatory technology, ensuring their relevance in a rapidly evolving market.
Financials
Notwithstanding macroeconomic headwinds, over the past five years the group has delivered solid yeatr-on-year (y/y) revenue growth, improving profitability, and robust cash generation. This growth has been underpinned by new and diversified revenue streams, including significant contributions from terminal orders, payments software solutions, and software's cloud and digital consulting services, as well as the consolidation of strategic acquisitions. Recent results for the full year ended 31 March 2025 were strong and well guided for, with headline earnings per share (HEPS) growing by 25.6% y/y to R17.57.
Revenue increased 7.6% y/y to R1.2 billion, underpinned by strength within the Payments division.
Further group margin expansion during the year was a highlight, driven by favourable product mix, further rental fleet deployments and well-contained expense growth amid management's intense focus on cost control and efficiencies across divisions. Adjusted operating profit grew 16% y/y and the operating margin expanded 138-percentage points (ppts) to 20%, which was a highlight.
The group maintains a robust and ungeared balance sheet with substantial cash reserves, and this financial strength has allowed the group to pursue organic growth, make strategic acquisitions, and return capital to shareholders. A final dividend of 7.50 cents per share was declared, bringing the total dividend for the year to 12 cents (FY24: 10 cents)
Overall, the results highlighted positive momentum and reflected a sequential improvement in the software division, although its development was below management's expectations. Still, both major segments benefitted from continued client acquisition and diversified revenue streams, driving further cash generation with healthy cash conversion from operations. Management's outlook was cautiously optimistic, with the group's prospective pipeline and initiatives having potential to deliver further growth going forward, despite expectations for continued macroeconomic strain for FY26.
Investment Case
Risks
Valuation
From 7.6% in FY25, we forecast sales revenue to rise 20% in FY26E and 26% in FY27E, underpinned by robust underlying demand for the group's payments solutions, including a positive tailwind for terminal estate growth from the reinvestment cycle due to the upgrade of existing POS devices to 4G compatible machines. We forecast a double-digit Software sales recovery, amid increased customer activity and IT spend from a low base, supported by management's action to align personnel spend with committed projects.
In this light, we forecast diluted headline earning per share (DHEPS) growth of 34% in FY26 and 27% in FY27, underpinned by robust top-line development and sustained margin expansion.
Using multiple valuation models we estimate a target price of R2.23, suggesting ~22% upside from current levels. This puts CTA on an exit PE multiple of ~10.5 times, which still seems undemanding relative to its long-term average, given robust potential growth to come. While there is no fixed dividend policy, the group has maintained an average payout ratio of 65% over the past five years. This puts our expected forward dividend yield at an attractive 7.6%.
