NET 1 UEPS Technologies’ share price surged 18.1% to close at R139.99 on Friday after the group reported a rise in earnings for the year to June, boosted by a $26.6m recovery for the South African Social Security Agency (Sassa) contract it lost in a court dispute.
Net 1 was dealt a blow early this year when the Constitutional Court cancelled the R10bn social grant tender awarded to the group’s subsidiary Cash Paymaster Services. It ordered Sassa to start a new tender process.
Net 1 has completed the implementation of the tender and will continue distributing the grants until a new supplier is appointed.
CEO Serge Belamant told Bloomberg that Net 1 spent more than R1bn implementing systems for Sassa, which constrained prior year earnings. He said that the social grant service “is becoming a smaller and smaller part of our business. It used to be 70% to 80%” but now it is 27%.
In Friday’s results statement, Net 1 said it is pursuing two new mobile payment deals in India.
It is pursuing deals internationally to reduce its reliance on the South African market where it has the multibillion rand social grant tender, and is aggressively pushing its mobile payment solutions mainly in emerging markets. The mobile business enables users to, among other things, make money transfers and secure payments.
Net 1 chief financial officer Herman Kotzé said the contract was still “important” to the group. “We would love to keep it. We would love to remain in some way or form a part of the pension payment process in South Africa,” he said.
Sassa is expected to reissue the tender in the coming months.
In the meantime Net 1 is expanding in India with two acquisitions having being finalised.
Mr Kotzé said India was a “massive opportunity” for the group even though margins were low, but volumes were available for future revenue opportunity.
In Africa it has a presence in Botswana, Namibia and Malawi and is looking at expansion in key countries in East and West Africa through partnerships.
Mr Kotzé said, “we will be disappointed if we can’t get it (the mobile payment and technologies business) to contribute 30%-40% of group’s revenues” in the next three to five years.
About 5-million people are using Net 1 technologies and related products and services for mobile payment.
Net 1’s fundamental earnings per share for the year to June rose 238% in rand terms to $s2.16. Revenue rose 54% to $581.7m on the back of higher revenue resulting from a rise in low-margin prepaid airtime and electricity sales. About 25% of Net 1’s revenue is from the KSNET business in South Korea.
The South African transaction processing segment reported revenue of $88.3m in the fourth quarter up 52%, lifted by the $26.6m paid back by Sassa and more low-margin transaction fees generated from beneficiaries using the South African national payment system.
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