Net 1 UEPS: Hidden Gem With Tremendous Upside Potential

| About: Net 1 (UEPS)


Great for both value and growth investors.

Recent investment from the IFC crushes the bear thesis.

A path exists for EPS to double over the next two years.

Company Description

FY Ended 06/30 Estimates Using Currency at Time of F'16 Guidance Issuance* Estimates Using Rand:$US Exchange Rate of Approximately 15:1
Price (4/12/16) $10.90 Author's EPS F'18 $4.00 $3.20
Market Cap $512 Consensus EPS F'18 N/A
Avg Daily Volume 65k P/E 2018 (Philly Fin) 3.4x
Dividend N/A Author's EPS F'17 $3.15 $2.50
Price/TBV ($9.71/share) 1.1x Consensus EPS F'17 $2.18
Price Target $40.00 P/E 2017 (Consensus) 5.0x
Author's EPS F'16 $2.45 $2.00
Consensus EPS F'16 $1.92
P/E Fiscal 2016 (Consensus) 5.7x
**Our estimates do not contemplate revenue or dilution associated with the investment by.
IFC announced on 4.11.16. The IFC deal will increase UEPS' share count by approximately 18%.**
Note: Fiscal Year ends in June.
*Note: Currency estimates are based upon an 11.4 Rand:Dollar exchange rate.
Note: 15:1 rand to dollar exchange rate also assumes 10% depreciation in South Korean won since guidance issuance.
Source: Bloomberg, Author

Net 1 UEPS Technologies, Inc. (NASDAQ:UEPS) is a global payments company focusing on the world's nearly five billion unbanked people. The majority of UEPS' revenues (approximately 70%) are currently generated in South Africa, while approximately 25% of the company's revenues are generated in South Korea through KSNET, a top three Korean card processing and payment gateway network (similar to Global Payments (NYSE:GPN)). The company also generates about 5% of its revenues in the US and Europe, and has burgeoning start-ups in: India, Nigeria, and Hong Kong. We believe the South Korean payments business, KSNET, may be as valuable as the entire enterprise value of the company and encourage Net 1 to explore either a sale of this entity and initiate a large stock tender or take the company private.

Net 1's key differential is its ability to conduct transactions in both on-line and off-line environments with transactions to be reconciled within a brief period of time. The company employs biometric card technology (finger print and voice) to verify established identities in a database. The virtual card pay technology (the product name is VCpay) generates transaction codes rather than the transfer of the consumer's credit card number and information. (See UEPS' 10-K for a further description of the technology, starting on page 4 of the link.)

Because of its proprietary technology, it has been chosen by the South African Social Security System (SASSA) to deliver benefits to 10 million South Africans (about 25% of the adult population). Because SASSA grant recipients are on the lowest rungs of the socioeconomic ladder, correctly identifying and distributing grant monies to this group of the population (especially in the rural areas) has historically proven difficult for both the South African government as well as prior competitors to UEPS. These individuals' identities are often substantially harder to verify than individuals higher up the socioeconomic spectrum, and UEPS' biometric card technology allows for a cost-effective method to properly identify and disburse funds to the intended recipients. UEPS has partnered with MasterCard (NYSE:MA) to provide the debit cards issued to grant recipients. These recipients are able to use their MasterCard-branded cards to pay for goods, withdraw cash, etc., and, importantly, this is the first step in the process of bringing the unbanked into the formal banking system. (MasterCard benefits from the partnership because it brings 10M+ South Africans onto its network.)

UEPS has also partnered with MasterCard and been chosen by tender to deliver benefits to 12 African countries for a portion of the UN's World Food Program. (UEPS and MasterCard are also currently bidding jointly on over 80 countries worldwide for the World Food Program on a global basis.) Partnerships have also been established with Uber (Private:UBER) in South Africa, Oxigen Wallet in India, Microsoft (NASDAQ:MSFT), and several others. Net 1 also has a cooperation agreement with a South African bank (Grindrod Bank (OTC:GRDLF)) and owns a 25% interest in South African-based Finbond Mutual Bank (OTC:FBGRF) (Finbond is a $160M USD market cap bank that UEPS holds on the balance sheet for $6M USD, or approximately 20% of the fair market value of the company's interest).

Net 1 often provides unbanked South Africans (mostly SASSA beneficiaries, but also some higher-wage earners) with banking products, such as loans and insurance, as well as services for pre-paid airtime, electricity, etc. Lending to beneficiaries AFTER they have received their SASSA benefits has been one of the fastest growth areas for the company, and it now has 1 million EasyPay Everywhere bank accounts through Grindrod Bank. (Note: If the SASSA contract were to disappear, the company estimates it would only take about two million EasyPay accounts to be earnings-neutral.) EasyPay Everywhere is slowly becoming a competitor to Capitec Bank Holdings (OTCPK:CKHGY) ("CPI SJ"), a South African bank catering to lower-income individuals, that trades at 20x 2017 earnings and 5x book value.

4.11.16 Addendum: On April 11, 2016, UEPS and the International Finance Corporation (IFC), a member of the World Bank Group, announced that IFC was purchasing an 18% interest ($107M USD) in the company at a 20% premium to the April 8th closing share price, or $10.79 per share. In the associated press release, the IFC indicates that "Net1 has created impressive propriety technology for the delivery of services and demonstrated its effectiveness in South Africa. IFC and IFC AMC's funds' investments will help Net1 expand regionally, especially into African countries where there is limited banking infrastructure and availability of financial services for the poorest segments of the population." It is noteworthy that the IFC has a partnership with MasterCard called "The Partnership for Financial Inclusion" to expand microfinance and mobile financial services in Africa. This additional $107M investment, combined with $101M in cash at year-end and annual EBITDA of approximately $150M gives UEPS over $300M of growth capital, or about 60% of the company's market capitalization. OUR EPS ESTIMATES DO NOT INCLUDE ANY DILUTION OR ASSOCIATED REVENUE GROWTH FROM THIS INVESTMENT. THE IFC DEAL WILL INCREASE UEPS' SHARE COUNT BY APPROXIMATELY 18%.

The Original Bull Thesis / Why the Author Invested

In covering global financials, it's tough to find real barriers to entry. UEPS has exclusive contracts, notably SASSA and the World Food Program, that are nearly impossible to be competed away. When our firm invested in 2012, the SASSA price payments per beneficiary had been cut a second time, and a tender was given for the entire country (versus to companies in 4 regions) to UEPS, as it was substantially better than competitors at providing technology that eliminated fraud (especially in rural areas).

Recent History of SASSA Contracts: Fewer Providers, Lower Price
2009 and earlier 2010-2011 2012+
Participants Empilweni Payout System
Absa Bank Absa Bank
Monthly Price per Beneficiary (RAND) 25 ZAR 23 ZAR 14.4 ZAR

Net 1 has saved the South African government more in fraud prevention than the program costs: According to SASSA's 2013/14 Annual Report, ZAR 2 billion have been returned to fiscal reserves, versus the ZAR 1.7 billion SASSA pays UEPS (ZAR 14.42 x 10 million x 12 months = ZAR 1.7 billion). This led to accusations - in both South Africa and the US - by the losing bidder (Allpay) that the bidding contract was not clearly written and that the bidding process was conducted improperly. The courts have subsequently dismissed all of these claims. Our belief, which came to fruition, was that all the accusations of improperly winning the contract would prove false - and indeed, they did. The SEC and Hawks in South Africa have both cleared UEPS of wrongdoing. Additionally, the South African court system has made various judgments (here and here) indicating that there was no evidence to support Allpay's claims of improper behavior. (There is still an outstanding DOJ investigation.)

The South African courts did rule that a revised SASSA contract had to be re-bid, but not necessarily awarded. UEPS chose not to re-bid on a revised contract due to: 1) more stringent limitations on debit orders; 2) deteriorated economics of the proposal; 3) limitations on providing other products/services through these "restricted" bank accounts; 4) a restriction that any winning bidder will NOT be permitted to solicit any other business from this customer base directly or indirectly through a subsidiary/affiliate; and 5) the prohibition of setting up bank accounts for beneficiaries. Despite UEPS not re-bidding on the SASSA contract, the South African government ruled that all the bidders for this amended tender were incapable of doing the job, and instead, asked the company to continue with the contract for the foreseeable future. In short, the South African government believes there is no other company capable of doing the quality work Net 1 is doing for the price it is charging. We also believe it is highly unlikely the government is capable of taking this service in-house anytime soon and risk a disruption in benefits payments to a quarter of the population.

We note that UEPS has NOT been found guilty of any improper behavior by ANY investigation, and there have been many. In fact, social grants are the highest-rated "government program" by the population, with a 60% satisfaction rate.

Now that the company/management has been exonerated, we believe management marketing in the US and additional sell-side coverage will be forthcoming. (Only one sell-side firm covers at present.) We are at a loss to explain why none of the roughly ten investment banks that cover the five major South African banks are not providing coverage to UEPS, especially when it is 80% cheaper (on both 2017 P/E and price/book value) than its nearest competitor, Capitec Bank.

We believe Capitec is UEPS' closest competitor in South Africa, as the former is focused on the low-end consumer in South Africa (it is estimated that over 60% of Capitec's client base is low-income). But unlike UEPS, Capitec only has a single product: the Global One account. This account serves as the access point to transactional banking, retail savings and unsecured lending. Unsecured lending makes up about 80% of Capitec's revenues, with transaction fees contributing the remainder.

LTM Capitec Net 1
ROE 24% 22%
Revenue Growth 17% 20%
P/E 2016 18.7x 5.0x
P/B 5.1x 1.6x

We also believed NET 1's proprietary technology would be applicable throughout the less-developed world. Indeed, the partnership with MasterCard for the World Food Program was a big win, as was an emerging relationship in Nigeria to identify the population so that basic banking services can be provided. Neither of these are producing material earnings in 2016, but are one part of the growth story for 2017 and beyond. (The World Food Program contract has only commenced roll-out in one of the twelve awarded countries.) Net 1 has also been asked to tender a proposal for an East African nation of approximately 30 million for a contract similar to SASSA, and is bidding to provide further services to the government of South Africa.

UEPS has met or beat sell-side net income estimates and revenue estimates each quarter over the past year, with about 20% year-over-year revenue growth in constant currency. The company did miss fiscal second-quarter 2016 earnings mostly on currency translation (and to a lesser extent, tax and investments on new program roll-outs). Over the past 12 months, the South African rand has depreciated by about 20% against the US dollar, and troughed at about 30% depreciation around the time UEPS closed the second fiscal quarter 2016 financial statements (December 2015).

We believe the company will earn approximately $2.00 per share ($2.45 in consistent currency of 11.43 rand to dollar this June fiscal year), or up 10% year over year, in FY 2016. We believe a real path exists to $4 in earnings over the next three years. (Management's 2018 bonus is based on this number.) The path to $4 will be paved by 10% organic growth, the World Food Program roll-out in additional countries, the continued roll-out of insurance products, an additional contract win (for either an additional African country and/or the South African government), contribution from ZAZOO in Europe, as well as the potential for India and other new markets to contribute to earnings over the next few years.

This is a net debt-free company ($58.6M gross debt), and it is aggressively buying back stock at current levels. UEPS has repurchased about 5% of outstanding shares since November 2015, and has an authorization for 20% of shares outstanding at today's price level. It had $101 million in cash on the balance sheet at the end of December 2015. The company is also in a negative net debt position, and we would argue modest leverage of 2-3x EBITDA could also be applied to the business, raising an additional $300-450 million.

We also believe the potential exists for Net 1 to sell its Korean business, KSNET. In fact, KSNET was rumored to have received a bid by a global payments player a few years ago for approximately $400M, or roughly the enterprise value of UEPS today. CEO Serge Balamant confirmed his belief in this valuation on a Baird hosted conference call in early 2016. We spoke to a leading investment banker in Asia, who is familiar with both UEPS and KSNET, and he confirmed there is interest in the franchise and believed its value is $400M+.

The Path to $4 in Earnings Power in FY 2018

Management's FY 2018 maximum bonus is based on achieving an EPS target of $3.76. Management will receive a third of their bonus if UEPS generates $2.85 per share, two-thirds of their targeted bonus at $3.30 per share, and a full bonus at $3.76 per share or higher. There are several ways to get to this number. Here is one potential scenario:

FY 2016 earnings (using rand-to-dollar exchange at the time of guidance issuance) are estimated to be $2.45. (Note, this equals roughly $2 with the rand at 15 to the dollar.)

  1. 10% organic growth, or roughly $2.95, for FY 2018. The build-up to this estimate is as follows: Internal growth of 10% in Korea, 15% for all non-SASSA businesses - including EasyPay Everywhere, which is growing much faster and could alone be $0.25 of additional earnings power if 4 million accounts are reached (there are currently 1 million accounts, compared to 0 a year ago) - 0% for SASSA.
  2. Winning major contracts. Net 1 is currently bidding on the South African government contracts for water metering and electricity. Each of these could add $0.30-0.40 in two years. We assume they win one of the contracts for $0.35 to EPS in 2018. (Note: Net 1 is also bidding on a third major payments contract in South Africa outside of the government.)
  3. Life insurance is now operational, and in a March 2016 press release, the company stated it had already signed up 57,000 new policies, equating to a 35 million annual run rate (in South African rand) of revenues, or about $0.05 per share. This could add $0.10-0.15 per share in 2018.
  4. World Food Program in partnership with MasterCard. UEPS has won World Food Program in 12 countries, and the company expects the first country to commence implementation at some point over the next two months. It is currently bidding on the program worldwide - over 80 countries - in a joint bid with MasterCard. (UEPS provides the technology, MasterCard provides the network.) We estimate that if just the 12 countries currently won get rolled out to an estimated 7.5 million people, the program is worth about $1.50 fully phased in 5 years. Based on that, we believe this program will generate earnings of approximately $0.20 in FY 2017 and $0.35-0.40 in FY 2018. This is what most excites us about the name. IF UEPS WINS THE WORLD FOOD PROGRAM GLOBALLY, THE EARNINGS WOULD BE SUBSTANTIALLY GREATER.
  5. UEPS has been exclusively invited by the government of an East African nation to bid on a benefits disbursement business similar to SASSA. Winning this contract would equate to an additional $0.20 in 2018 earnings (assuming the same pricing as SASSA).
  6. EasyPay Everywhere - Universal payments card for people with no credit card that has an MA logo - started up in September 2015 and had 35,000 loans as of December 2015. EasyPay Everywhere is the company's transactional banking account that provides all the services UEPS offers in South Africa, including loans and insurance. This product is enabling non-banked consumers to set up a "web cloud account" - so money can go on their cards and be spent on Uber (proprietary relationship in South Africa) or others - and is similar to Safaricom in Kenya (which trades at 16x forward earnings), as both programs are enabling the unbanked to get credit. We think this division could do 8 million rand in 2018 from 2 million rand in 2016, with a 35% EBITDA margin. UEPS is in 10 countries now and expects to be in 44 countries by end of next year if it gets EU approval. (UEPS has applied for a bank license in Malta to issue cards.) This has at least $0.05-0.10 of earnings power in 2018.
  7. Nothing for the partnership with Oxigen in India, the 25% interest in a Nigerian credit company, the recently consolidated interest in a Hong Kong-based payments company, Transact24 (valued at about $20M USD), or the company's recently announced acquisition of a controlling stake in a German payments company (Masterpay) that will, among other things, provide Net 1 with support and banking services required to deploy its products and services in Europe (ZAZOO).
  8. Stock buyback - The company announced in March that it had repurchased a total of about 3% of shares outstanding over the prior two months since reporting fiscal second-quarter 2015 (December) earnings, for about $13M USD. (UEPS previously bought 2% of shares outstanding last quarter.) This adds about $0.05 per share annually. There is a repurchase authorization for $100 million USD, or about 20% of shares outstanding. If it repurchased the whole amount, it would add over $0.50 to 2018 EPS.


Current FY $2.45 (using currency exchange rate at time of guidance) to $2.95 internal growth by FY 2018

+ New contact in South Africa - $0.30-0.40

+ Life insurance - $0.10

+ World Food Program roll-out in roughly a third of the 12 awarded countries - $0.10-0.15

+ Additional African benefit disbursement contract(s) - $0.20

+ EasyPay Everywhere - $0.05-0.10

+ Stock repurchase - $0.05-0.50+

+ India/Nigeria/Transact24/Masterpay (Unknown)

Total in FY 2018: Between $3.75 and $4.35 in earnings at a 11.5:1 exchange rate, or closer to $3 with the rand at 15:1 to the dollar.

Why has UEPS Fallen More than 50% in the Last 6 Months?

Soon after the company was exonerated of all counts by the US and South African authorities, and soon after saying it would NOT bid for a new amended contract with SASSA (but the government asked UEPS to keep the existing contract anyway because, we believe, it decided no other entity was capable of doing a competent job), vocal short sellers published a series of "short" articles on Seeking Alpha. The short sellers' allegations are vast and broad and too many to address. (We encourage investors to read them directly.) We believe most of the allegations are directionally accurate, but factually incorrect. We will address some of the key charges. Of the numerous allegations, only one - that the CEO received a bogus online PhD from a sham school - has been proven correct. The rand has also fallen by 20% in the past 12 months (although it strengthened in the past month or two), and this has been a major negative, along with the political upheaval in South Africa and a weakening economic situation.

The key principal allegation is that the SASSA contract is ending in March 2017, and the company will lose approximately 70% of its revenues - The reality is SASSA directly represents only approximately 25% of total revenues (slightly less of earnings, as the contract has a lower margin than the rest of UEPS' business), while the remaining 45% relates to banking services that will only be minimally impacted if the SASSA contract is lost. SASSA revenues are also growing at low-single digits (it has enrolled the entire eligible population), while non-SASSA Financial Inclusion and Applied Technologies is growing at 20%+. Furthermore, the SASSA agreement is for a five-year contract with two one-year renewals. UEPS has won the contract several times previously. There are no other companies capable of executing the contract, and the chance that it "goes away" and 10 million beneficiaries - representing roughly 25% of the adult population - losing their benefits seems impossible. We strongly think the contract is not going anywhere and is likely to continually be extended, as the performance has been good. Rather, we think it is likely that UEPS wins an additional utility contract (or two) that is up for bidding. This would be a huge win, as no one is expecting the company to win another contract in South Africa.

Key Allegation Number Two - The debiting of bank accounts by UEPS is improper/should not be allowed, and this is a large portion of its growth in the Umoya Manje (prepaid airtime) and Moneyline micro lending businesses. There are two key responses to this. First, UEPS does not debit the account before the recipient receives funds - it does not debit beforehand even for insurance, which is allowed by law. UEPS utilizes debit orders post facto, which are part of the South African banking system. Second, the National Credit Regulator has already adjudicated the issue as to whether the company can open up a separate bank account at Grindrod Bank and use an EasyPay Everywhere account to do basic banking services. Actually, the NCR ruled that Net 1 does not share any SASSA data in its own Grindrod/EasyPay Everywhere accounts, which was the main charge - that the company had an unfair advantage.

We believe poor folks deserve to have basic banking services as well as wealthier folks. If UEPS does not provide this account, most other banks (other than Capitec) are not interested in low-balance accounts. South Africa has strong usury limits, so the cost of the bank account and interest rate charged are regulated. In fact, in May 2016, another price cap on all consumer lending - including UEPS's Moneyline product - takes effect that lowers the annual APR from 60% to 38% on consumer loans under six months.

What the "bears" seem to be arguing is that there is a conflict of interest between providing the two services (banking and grant distributions), and/or these lower-income people should not have access to this banking product. The Democratic Alliance - the ANC opposition - recently referred this issue to a "Competition Commission" to investigate if it was "anti-competitive" that UEPS has some sort of proprietary access by knowing when and how much the monthly payments from SASSA are due. (NET 1 claims it re-underwrites all bank accounts, and if it did not provide banking services, most of these people would have no bank accounts at all.) Remember, the government "created" this monopoly by reducing the SASSA beneficiary distributors from three companies to just UEPS in order to cut program costs by roughly 50% per beneficiary for distribution. Also, recall the National Credit Regulator already said UEPS' fees were proper.

The opposition Democratic Alliance has drawn attention to excessive and improper debits being taken out of beneficiaries' bank accounts by the "loan sharks". A lot of the pushback here seems less directed against UEPS, and more against limiting deductions from the bank accounts of beneficiaries to ensure they have enough funds to survive. (Recall, Net 1 is getting paid no differently from any other bank account that allows debiting after deposit, or "automatic" bill pay.) We can imagine some maximum deduction allowed each month as a reasonable compromise. But we cannot see the prohibition of deductions from bank accounts - how would these people pay their bills? By using cash in a crime-ridden country and standing in long lines at the electricity department? Also, any of the changes listed above would also require approval from the South African Reserve Bank, Payments Association of South Africa, and other regulators, because the SASSA/Dept. of Social Development does not have jurisdiction.

Key Allegation Number Three - The Korean payments business, KSNET, is not using proper accounting and is recognizing earnings far faster than cash flow by capitalizing payments to vendors to incent business. We are less sure what the proper accounting is here, but it is the same accounting used by other merchant processors in South Korea and by players in the US, like Heartland Payment Systems (to be acquired by GPN). Much of the gap between earnings and cash flow in the past year is explained by the widening value of the rand and the South Korean won. The thesis is correct in that cash from up-front incentives have accelerated, and the cash flow in this business is less strong than earnings. To repeat our earlier statement, management and third-party sources we have spoken to value this segment at $400M using current accounting.

Key Allegation Number Four - Management is completely unethical and cannot be trusted - there have been complaints of people dying standing in line for benefits, bribery allegations, etc. Most of the allegations are many (10+) years old, all have been investigated, and the company continues to win contracts in South Africa and globally. We do note that we were surprised and disappointed by the news that the CEO received a bogus honorary PhD, which the company has recently acknowledged. The honorary PhD was awarded in 2003, UEPS was founded in 1989, and Mr. Belamant has several patents awarded prior to the receipt of the honorary PhD. Thus, Mr. Belamant's - and by extension UEPS' - successful invention, development, and implementation of IT technology had nothing to do with the honorary PhD. Nonetheless, a PhD is almost always an "earned degree" versus a "doctorate of letters," which is usually granted as an honorary manner. We believe Mr. Balamant should not have identified himself as "Dr." Belamant on his business card, as the policies of institutions of higher learning generally ask recipients of honorary degrees to "refrain from adopting this misleading title" and "restrict the use of the title Dr." (Source: Wikipedia).

Key Allegation Number Five - The shorts claim that new legislation is coming in South Africa that will outlaw the direct deductions of payments from grant beneficiary accounts. We have spoken to several people in South Africa who know nothing about any pending legislation in this regard. We have also checked the federal registry (which lists upcoming bills), and there is nothing there either. We find it highly unlikely that there is imminent legislation that will pass both houses of congress and be signed by the president in short order, especially considering no such bill is even registered yet.


Any payment business globally would be a good place to start in terms of comparable P/E valuations. Mid-to-upper teens P/E multiples are arguably where this group trades. (The SASSA contract - roughly a quarter of earnings today, but not growing - is arguably worth 5-7x earnings due to its limited visibility.) The South African banks, which grow much slower, trade at 9-10x P/E. Capitec, a South African bank that grows fast and caters toward the lower-end consumer, trades at 20x P/E, or 5x book value. Safaricom, a payment company in Kenya, trades at 16x EPS. If you say the South African business is really a lending and not a payments business - which we would take issue with - it is still hard to argue for less than 10x.

Comparables Price Mkt. Cap $M P/E 2016 P/E 2017
South African Banks
Capitec Bank Holdings Ltd. CPI SJ $ 610.00 70,532 18.7x 15.8x
Firstrand Ltd. FSR SJ $ 46.57 261,234 11.5x 10.7x
Standard Bank Group Ltd. SBK SJ $ 128.99 208,831 9.2x 8.5x
Barclays Africa Group Ltd. BGA SJ $ 182.67 90,580 8.0x 7.5x
Nedbank Group Ltd. NED SJ $ 137.53 116,591 7.8x 7.3x
Average 11.0x 10.0x
Payment Processing Payment Processing Payment Processing
Heartland Payment Systems Inc. HPY $ 103.58 3,832 31.1x 27.3x
PayPal Holdings Inc. PYPL $ 38.64 47,244 26.0x 22.0x
Global Payments Inc. GPN $ 75.30 9,733 25.5x 22.5x
Fleetcor Technologies Inc. FLT $ 151.02 13,987 22.9x 19.8x
Vantiv Inc - Cl A VNTV $ 54.62 10,453 20.9x 18.7x
Wex Inc. WEX $ 86.59 3,346 21.8x 18.5x
Euronet Worldwide Inc. EEFT US $ 74.23 3,861 19.7x 17.2x
Teletech Holdings Inc. TTEC US $ 27.42 1,323 16.9x 15.0x
PayPoint Plc PAY LN $ 851.50 580 15.9x 13.5x
Green Dot Corp.-Class A GDOT $ 21.83 1,094 15.7x 12.9x
Qiwi Plc-Sponsored ADR QIWI RX $ 1,075.00 64,952 14.7x 12.7x
Blackhawk Network Holdings I HAWK $ 34.55 1,928 13.6x 12.3x
Cardtronics Inc. CATM US $ 36.41 1,645 11.8x 12.0x
Alliance Data Systems Corp. ADS $ 214.48 12,721 12.7x 11.2x
Evertec Inc. EVTC $ 13.89 1,057 8.6x 8.1x
Average 18.5x 16.2x
Safaricom Ltd. SAFCOM KN $ 16.95 679,109 18.7x 16.2x
Net 1 UEPS Technologies Inc. UEPS $ 10.90 512 5.7x 5.0x
Source: Bloomberg, prices as of 4.14.16

Our minimum target price is 9x 2016 current rand (15:1)-based EPS of $2.00, or $18, the same as a slow-growth South African bank's.

Our maximum target price is 17x 2018 current rand (15:1)-based EPS of $3.20, giving it a global payments/Safaricom multiple in the high teens or a stock north of $50.

Other issues

The short case is well laid out. We would direct investors to review the allegations. One point to note is that while we have NOT done a proprietary background check on management (although we have met and have had countless conversations with senior management and their partners over the past several years), we don't believe MasterCard, the International Finance Corporation, the South African Government, Uber, Microsoft, or Oxigen in India, etc. would partner with Net 1 if the allegations of management impropriety had merit.


The author is net long UEPS at the time of this article's publication. In addition, the author's officers, directors, employees and/or principals (collectively "Related Persons") may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated in this article.

The author wrote this article itself and it expresses its own opinions. It is not receiving compensation for this article. In addition, the author has no business relationship with any company whose stock is mentioned in this article.

The author does not know your particular objectives for returns or constraints upon investing. All investors are encouraged to do their own research before making any investment decision.


There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth in this article. The author will not be liable to you or anyone else for any loss or injury resulting directly or indirectly from the use of the information contained in this article, caused in whole or in part by its negligence in compiling, interpreting, reporting or delivering the content in this article.

Information pertaining to this article is obtained from Yahoo Finance, Google Finance, and the SEC Database, among other sources. If these sources contained faulty or old information it could be incorporated into this analysis.

No Investment Advice

This article is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. This article is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. It does not constitute a general or personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. The price and value of securities referred to in this article will fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of all of the original capital invested in a security discussed in this article may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors.

Disclosure: I am/we are long UEPS.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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