Based on market analysis by Market Haven’s Jacob Gold, Lesaka Technologies could end up becoming the next big tech firm based in South Africa. Similar to other fintech companies like Fawry in Egypt, PagSeguro, and Nubank in Brazil, Lesaka Technologies could become the next Block Inc. of the South African stock market. Market Haven is dedicated to helping you succeed on your financial journey.
Similar to the early days of Square, referred to as NYSE: SQ, Lesaka is a fintech company providing services to both consumers and businesses. Specifically, they target medium and small-sized enterprises by offering a complete range 0f financial services via POS terminals to merchants and customers.
Lesaka Aims To Change South Africa’s Cash-based Economy
Up until now, South Africa has lagged behind first-world countries when it comes to electronic commerce, as over 60 percent of transactions are done in cash. Therefore, there’s a major possibility of taking control of the market when fewer companies are offering mobile banking services and similar services in the market.
Last year, Lesaka made a major acquisition by purchasing the Connect Group in April, which caused its revenue to more than double. With this major change, investors expect Lesaka’s revenues to increase by 134 percent over the course of the 2023 fiscal year. In fact, there are expectations that the revenue will reach as high as $521 million.
Lesaka Technologies Focusing on Paying off Debt
As of now, it’s trading at an enterprise value of around $380 million or 0.7 times its revenue run rate, which is much lower than similar public companies. Since Lesaka acquired Connect, it has been making various changes, like improving offerings and right-sizing operations with the goal of paying debt.
The company has retained a cash flow positive status for the past two quarters, which allows it to focus on building and then paying off its $205 million debt. Besides using cash flow to reduce its debt, it also owns four major positions in non-strategic entities that it can sell, which are valued somewhere between $40 million and $76 million. The biggest of these is its 10 percent equity position in India-based mobile wallet company, Mobikwik, which also runs buy now-pay later operations.
Lesaka Technologies has two divisions; one offers B2B solutions, and the other is a B2C business serving welfare recipients and low-income earners. It dominates the B2B merchant business space with an informal market product, Kazang. In fact, a large chunk of the company’s revenue comes from its B2B services that target MSMEs.
Currently, it has various brands that target different businesses, like how the Kazang offering brings in about 90 percent of revenues by targeting the informal economy. The core of this offering is a small, battery-operated POS device provided to merchants to conduct business. With over 72,000 of these devices currently in use, Kazang can process around 1.5 million transactions each day.
Therefore, Market Haven’s Jacob Gold is feeling optimistic about this stock because of its impressive growth strategy. Considering that most of South Africa is a cash-based economy, it’s a good time to invest in developments that can bring about change.
