Capital Appreciation’s results for the six months ended 30 September 2022 showed strong revenue growth, but its profitability was disappointing.
Capital Appreciation invests in emerging financial technology firms and raised R1 billion in 2015 by listing as a Special Purpose Acquisition Company (SPAC) on the JSE.
It invested in numerous fintech companies and has grown its business to a market cap of R1.6 billion, with operations in Africa, Australia, Europe, North America, and Asia.
In its half-year results, it recorded strong revenue growth of 22% from R439.4 million to R538.1 million. It also significantly increased its footprint.
In the Asia Pacific region, Capital Appreciation increased revenue from R2 million to R35 million year-on-year.
The rest of Africa increased from R7.3 million to R12 million, and the UK from R1.8 million to R5.2 million.
However, revenue from the United States decreased from R10.5 million to R7.3 million.
Although Capital Appreciation showed strong revenue growth, its profit for the period decreased by 58% from R91.4 million in 2021 to R38.4 million in 2022.
It is only the second time the company experienced a decrease in its interim earnings per share – down from 7.44c per share to 3.13c per share.
The most notable reason for the drop in profitability is the company’s significant increase in operating expenditure.
Capital Appreciation’s operating expenditure increased 73% over the last year – the largest increase since 2018.
This increase completely eroded the 22% increase in revenue and resulted in a decline in earnings per share.
Joint CEO Bradley Sacks said the increased expenses are seen as an investment in future operations, and they expect revenue growth to surpass the increase in costs.
Another reason for the low profits is a large increase in the company’s effective tax rate for the reporting period.
Capital Appreciation paid an effective tax rate of 49% in 2022, compared to 29% a year before.
It effectively halved the company’s profit before tax and significantly impacted its bottom line.
Daily Investor asked Capital Appreciation about the increase in tax rate and the drop in U.S. revenue, but the company preferred not to answer these questions.