Pepkor’s Flash payment system makes a splash

Pepkor’s Flash business which has infiltrated and made a splash in the informal economy has increased its profitability by more than 20%, the group’s latest annual results reveal.

The JSE-listed retailer reported on Wednesday that the system has processed R37.1 billion worth of products sold, or cash digitised this year, marking an 11.6% increase.

Flash is a technology company under the Fintech segment of Pepkor Holdings, which offers informal traders an affordable and secure payment system to facilitate trade. Informal traders can use Flash to sell airtime, data, electricity and make bill payments among other functions.

Moneyweb first reported about this thriving unit of Pepkor back in June on the MoneywebNow podcast show.

At the time, noted investment analyst Keith McLachlan told show host Simon Brown: ‘I think Pepkor does itself a disservice in terms of disclosure around Flash.”

It seems Pepkor heard the message and shared more details on Flash in its full-year results to the end of September 2023, published on Wednesday.

“The average throughput per trader across the [Flash] base increased by 11.3%,” the group said.

According to the Cape Town-headquartered group, the payment system is also now able to facilitate the distribution of Sassa (South African Social Security Agency) grants to beneficiaries. The development is sure to ease some pressure off existing payment points like banks and grocery retailers in the wake of having to carry the load with the embattled SA Post Office being under business rescue.

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However, Flash also poses a threat to banks and other fintech plays. According to 2022 data available on Pepkor’s website, its Fintech business accounted for 10% of the group’s total revenues and the Flash business contributed the majority of the revenue recorded in the segment.

Group profits down

While Flash was a highlight Pepkor’s results, the group reported a slowdown in profits for the year. Overstretched local consumers and a tough operating environment saw Pepkor’s headline earnings per share (Heps) coming in lower this financial year at 149.1 cents. Heps from continuing operations came in 8.7% lower than last year.

However, thanks to an improved trading performance in the second half and the addition of the 53^rd trading week, the year’s Heps declines came in better than expected. In a trading update earlier this month, Pepkor gave guidance to the market that it expected Heps to slide by as much as 15.2%.

The 2023 financial year saw Pepkor’s revenue increase by 7.7% to R87.40 billion. A total of R13 billion in cash was generated from the group’s operations, 15.9% higher than in the 2022 period. However, operating profit before capital items came in 8.1% lower at R9.51 billion.

Pepkor’s board declared a dividend of 48 cents per share for FY2023, which represents a 12.9% slide compared to FY2022.

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The market seemed disappointed with the financial performance despite the group’s guidance on lower Heps earlier this month. Its share price traded around 1.8% lower, just before midday.

Pepkor’s share price

The group noted in its results that the Pep stores brand posted strong like-for-like sales growth and registered market share gains. Footfall to Pep stores is also being supported by growth in the PAXI parcel distribution business, which recorded an 18% rise in volumes to 4.9 million this period.

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Pepkor said that pay days, including the dates of distribution of social welfare grants, continue to support its sales performance as these periods tend to register a spike in sales activity.

It added that the Ackermans business, which previously was a victim of poor stock selections, is showing signs of improvement as customers take a liking to this season’s fashion choices. As such, the retailer noted market share gains in the fashion for younger girls and lingerie categories, in addition to the schoolwear category.

“Good progress was made to clear underperforming merchandise through markdowns, resulting in improved inventory levels. A new teenage range, CUBE, was launched with positive response from customers,” Pepkor said.

Going into the festive season, the retailer noted concern around ongoing disruptions at the country’s ports, further adding that the disruption had “adversely affected stock inflows following year-end.”

Pepkor said that it is looking to the festive and back-to-school trading periods to support sales growth in the first quarter of the new financial year.

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