New operations lift Capprec

Capital Appreciation shares flat despite operating profit more than doubling in the six months to September

Shares in Capital Appreciation shrugged off a surge in the fintech company’s interim revenue and operating profit, closing flat on Tuesday, with analysts saying that the counter was undervalued.

Shares in Capital Appreciation (Capprec) shrugged off a surge in the fintech company’s interim revenue and operating profit, closing flat on Tuesday, with analysts saying that the counter is undervalued.

The first special purpose acquisition company to list on the JSE’s main board, Capprec raised R1bn through a private placement in October 2015. Following a firm focus on the fintech sector, it migrated to the JSE’s software and computer services sector in June.

Capprec posted a 129% increase in operating profit to R85.6m for the six months to September, on earnings from its newly acquired trading operations, which were included for the five months from May.

Cash generated from operations and investments increased 79% to R60.2m, giving the startup a “phenomenal” cash conversion rate, said independent analyst Chris Gilmour.

Capprec owns two payments companies, African Resonance and Dashpay, and software company Synthesis Software Technologies. The group’s client base includes SA’s major banks and insurers.

With R463.1m to deploy into existing businesses and to fund new deals, Capprec had evaluated a number of potential acquisitions in recent months, said CEO Bradley Sacks.

“There’s no lack of opportunity, but we will be diligent about buying businesses, not just for the sake of growth.”

Future acquisitions could be in new fintech verticals, such as robo-advice or credit-scoring analytics, Sacks said.

Technology-driven disruption in financial services plays into Capprec’s hand. One of the JSE’s few pure tech counters, its assets speak to financial inclusion, which represents a market opportunity of more than $2trillion, according to the International Finance Corporation.

Despite the positive outlook, the share closed flat on Tuesday at 75c, below its 12-month high of R1. Capprec bought back 25-million treasury shares during the period.

“We thought the share at this price is a screaming ‘buy’. If you had to compare our price performance against comparable companies in the sector internationally, we’re at a huge discount,” said Sacks.

Directors and management hold 33% of the company, with the Public Investment Corporation holding 21% and Patrice Motsepe’s African Rainbow Capital about 3%.

Capprec was undervalued relative to its business fundamentals and earnings outlook as a growth stock, said independent analyst Mark Ingham.

“The market wanted to first see organic growth. That is going to come.

“This is a highly entrepreneurial, very innovative company with proprietary technology, which is a big barrier to entry in this business,” said Gilmour.

Provided Capprec could bring in the earnings, the share was “very cheap indeed”.

ACQUISITIONS COULD BE IN NEW FINTECH VERTICALS, SUCH AS ROBO-ADVICE OR CREDIT SCORING ANALYTICS