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QUESTION $1[60$ marks, $108$ minutes$]$

You are a senior investment manager with the African Venture Partners Trust, and you spend most of your time analysing the results of listed companies in an effort to identify suitable investments for the portfolios of your clients. While reading a report on $$Understanding the sector impact of COVID$-19$ by Cary Stier, Global Investment Management Leader at Deloitte you were struck by the following statement: $$Global economic activity is at a standstill as the world takes an aggressive stance to slow the spread of COVID$-19$ and that is having broad implications for the investment management industry. Aggressive fiscal and monetary policy changes combined with critical containment actions around the world have had a major economic impact, yet liquidity remains scarce and the outlook for earnings is soft.$$ The current market volatility has redirected the attention of most sellers and buyers as it relates to Mergers and Acquisitions $($M&A$)$ activity. Buyers may now emerge in a stronger position to negotiate transactions while sellers will have to perfect their competitive advantages. You strongly believe that challenging times can be a catalyst for future innovation and growth and that the pandemic will increase investor and board of director attention to environmental, social, and governance considerations. In view of these changes in the economy, you are considering recommending investments in the Business Services sector specifically the Fintech $($financial technology$)$ space. An exponential rise in smartphone uses, growing adoption of mobile payments in emerging countries and rise of the m$-$commerce industry are expected to drive the global mobile payments industry ahead. The coronavirus outbreak also enhanced the lure for the sector as electronic payments are gaining precedence due to the contact$-$less mode of operation. The Business Services sector is likely to record $4,9\%$ earnings growth in the first quarter of $2021.$ Accordingly, you are currently analysing the results of certain companies. A company called SmartPay Ltd caught your eye and you obtained the following information regarding this company: SmartPay Ltd was founded some time ago and operated as a Fintech company that operates a technology platform offering online payment solutions that include card and payment processors, mobile payments, and ATM services. In $2004,$ the company was listed on the JSE and its share price grew steadily until $2017.$ From January $2017$ to the present date, the shares have doubled in price and the market in general appears to be most impressed with the performance of the company. The growth in the share price has been accompanied by growth in the number of online payment solutions acquired through the takeover of smaller businesses operating in the same market. Extracts from the available annual financial statements of SmartPay Ltd are as follows:

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Statement of Financial Position as at $31$ December

$2019$

$2018$

$2017$

R$\text{'}000$

R$\text{'}000$

R$\text{'}000$

ASSETS

Non$-$current assets

$16069$

$14696$

$13978$

Current assets

Inventories

$192085$

$149002$

$109238$

Trade Receivables

$425665$

$229633$

$183493$

Cash and cash equivalents

$-$

$1465$

$4352$

$617750$

$380100$

$297083$

TOTAL ASSETS

$633819$

$394796$

$311061$

EQUITY AND LIABILITIES

Equity

Share capital

$147834$

$147834$

$147834$

Retained earnings

$100192$

$82275$

$43901$

Total equity

$248026$

$230109$

$191735$

Non$-$current liabilities

Long$-$term borrowings

$237652$

$108297$

$61356$

Current liabilities

Trade and other payables

$130732$

$44784$

$41538$

Shareholders for dividends

$17409$

$11606$

$8290$

Bank overdraft

$-$

$-$

$8142$

Total current liabilities

$148141$

$56390$

$57970$

Total Liabilities

$385793$

$164687$

$119326$

TOTAL EQUITY AND LIABILITIES

$633819$

$394796$

$311061$

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Statement of Comprehensive Income for the years ending $31$ December

$2019$

$2018$

$2017$

R$\text{'}000$

R$\text{'}000$

R$\text{'}000$

Revenue

$1287052$

$934052$

$729571$

Operating income

$85430$

$77422$

$56351$

Less: Net interest paid

$39264$

$20862$

$14342$

Net income before taxation

$46166$

$56560$

$42009$

Taxation

SA Normal

$1721$

$777$

$-$

Dividend Withholding Tax

$5306$

$2271$

$-$

Net income

$39139$

$53,512$

$42009$

Earnings per share $($cents$)$

$56,0$

$36,3$

$26,0$

Dividends per share $($cents$)$

$12,8$

$9,1$

$7,5$

$2019$

$2018$

$2017$

R$\text{'}000$

R$\text{'}000$

R$\text{'}000$

Operating income is arrived at after depreciation and loss on sale of non$-$current assets totaling

$3502$

$2237$

$2523$

and goodwill written off

$51912$

$4346$

$1134$

Statement of changes in equity for the years ended

$2019$

$2018$

$2017$

R$\text{'}000$

R$\text{'}000$

R$\text{'}000$

Accumulated profit beginning of year

$82275$

$43901$

$14327$

Net profit for the year

$39139$

$53512$

$42009$

Dividends

$(21222)$

$(15138)$

$(12435)$

Accumulated profit end of year

$100192$

$82275$

$439$