Upgrade Capital, Seeking Alpha, Bloomberg

Inaugural Ultimate Challenge

May 19th, 2015: The Long Case for Net1 UEPS Technologies

An Uncovered Jewel Set to Double:

Accessing an Untapped Market

Research Analyst
Jonathan Chang
Queens School of Business, 2017
j.chang@queensu.ca
+1.613.809.0329

Table of Contents
I.

INDUSTRY OVERVIEW 3

II.

COMPANY OVERVIEW 8

III.

INVESTMENT THESIS.. 14

IV.

CATALYSTS/RISKS..... 15

V.

VALUATION.. 20

VI.

RECOMMENDATIONS/SUMMARY... 25

VII.

APPENDIX...... 26

May 2015

Industry Overview
Transaction Processing for the Developing World
In developing regions, individuals have less access to banking services due to insufficient infrastructure and
lack of structure within their given geographical regions. Contrary to developed countries, it is difficult to find
transparency in anything from corporate governance to macroeconomic data points. As a result, banking
services are very uncommon in developing regions such as Africa or Asia. As a scarce resource, banking fees
become extremely expensive hence rendering them useless for their potential low-income users. Families
cannot afford deposit/withdrawal and account fees.
When workers receive their wages, they are often paid in cash. Similarly, welfare, transfers, or loans are all
done surprisingly in cash. There are no secure methodologies for workers to protect their cash in the event of
a robbery. In such manner, governments and employers must harbor the expense of obtaining, moving, and
protecting cash.
Access to affordable financial services is linked to overcoming poverty, reducing income disparities, and
increasing economic growth. There is a largely untapped market despite growing needs. A solution would be
incredibility beneficial in generating both economic and social welfare.

2.5 billion adults around the world, or 50% of the world population, do not have bank accounts or
access to financial services.
Source: Company Website, World Bank

May 2015

Industry Overview
The Under-Banked or Unbanked

The Global Findex shows of the worlds poor

do not have a bank account, not only because of
poverty, but also due to costs, travel distance and
paper work involved.

Solution: UEPS Smart Card and Mobile Technology

The Universal Electronic Payment System Technologies provides a way to access this market through its
unique technological and product developments. Its smart card and mobile technology allows for
affordable, secure, and reliable services that these developing countries greatly need. Furthermore, it
provides loans and insurance products. At the moment, there are more than 25 million cards issued in 10
developing countries worldwide. As a combination of typical transaction processing (such as Visa in the
United States) and banking services, UEPS streamlines operations for these unbanked individuals

By leveraging their smart card and mobile technologies, UEPS is able to provide financial services
such as loans and insurance products to these consumers and alleviate some of the challenges they
face in dealing with the informal sector.

Source: Company Website, World Bank

May 2015

Industry Trends
Global Mobile Transaction Value ($ Billions)
$1,476
$1,077
$691
$120
2012

$223
2013

$393

2014

2015

2016

2017

Worldwide Smartphone Users (Billions)

1.75
1.13

2012

2.03

2.28

2.5

1.43

2013

2014

2015

2016

2017

Near Field Communication (NFC) Enabled Phone Installed Base (Millions)

1907
1445
1025

556
146

2013

278

2014

2015

2016

Source: eMarketer, Business Insider, iDate, Pymnts

2017

2018

May 2015

Industry Trends
8/10 Countries w/ Highest Use of Mobile
Financial Services in Africa

Mobile Banking Helping Historically Unbanked

Regions to Gain Financial Access

Forecast for Mobile Payment Users Worldwide

Source: WorldBank, Myolisi Sikupela, Gartner

May 2015

Industry Segment Overview

Need for Comprehensive Solution

UEPS Targeted Industry Sub-Segments

UEPS can be viewed in 3 main sub-segments.

Although all three can be thought of as a type
transaction processing or financial service, the smaller
divisions are easier to understand. This include online
transaction processing, mobile payments, and
healthcare services.

Online Transaction Processing Services

From 2011 to 2012, Worldwide annual general purpose
card volume increased 17.5% to $15.4 trillion. In South
Africa, UEPS operates largest bank-independent
transaction processing service through their subsidiary
called EasyPay. In Korea, UEPS operates as one of the
three largest processors.

Mobile Payments
Despite lack of financial services, large proportions of
under-banked customers use mobile phones. In fact,
the World Bank states that there is a rising popularity
of mobile phones being used to transfer money.
Furthermore, mobile banking expanded to 16% of
market in Sub-Saharan Africa. As the UEPS solution is
enabled to run on the SIM cards in mobile phones,
users are easily provided with secure payment and
banking functionality.

Healthcare

Most mobile solutions offer limited

functionality and ability to use the mobile
device as an actual payments and banking
instrument.

There is a lack of broad-based healthcare services in

emerging economies. For governments focused on
providing affordable healthcare services, UEPS uses
XeoHeatlh to automate healthcare rules. It serves
governments, funders, and providers of healthcare to
reduce cost and increase efficiency using analytics.

Source: Company Website, World Bank

May 2015

Company Overview
Business Segmentation
International
TransactionBased
Activities
25%

Geographical Segmentation
Transaction
Based
Activities
42%

Korea
25%

Financial
Services
33%

International
1%

South Africa
74%

Revenue Generation and Monetization

UEPS makes their money primarily from charging transaction fees to government agencies, merchants, financial service
providers, utility providers, bill issuers, employers, and healthcare providers. Through provision of loans, insurance
products, and sales of hardware, licensing software, and related technology servicing, it generates servicing fees.
Furthermore, it has many subsidiaries which operate in its sub-segments. Some of the other ways in which UEPS generates
revenues are listed below:

Sales: act as supplier selling products (ex. Sale of UEPS to Ghana Central Bank).
Servicing: own and operate UEPS themselves and charge one-time and on-going fees for use of system (ex. South
Africa pension/wage distribution).
Loans and Insurance short-term loans for smart-card holders and providing insurance as financial services.
Card Transaction Fees: throughout KSNET (220,000 merchants), XeoHealth, VCPay systems.
Partnerships: introducing UEPS and VTU in new markets such as Namibia and Colombia where equity position is
taken and licensing is given.

In their income statement, UEPS categories revenue streams in four categories: South Africa Transaction Processing,
International Transaction Processing, Financial inclusion and Applied Technologies, and Corporate (loss in revenue so far).

This flexible approach enables UEPS to drive adoption while capturing value through technology
implementation.
Source: Company Website, Investor Presentation, Thomson One
Analytics

May 2015

Company Overview
Financial Metrics

Market
Capitalization

EV / Revenue

$631.5

EV / EBITDA

1.14
$2.10

0.9 x

$16

3.0 x

$652.5
111.0

+ Total Debt

60.0

+ Pref. Equity

= Total Enterprise Value (TEV)

Series of
Sept Insider
Sales

$14

0.3 x

Capitalization Table

+ Total Minority Interest

Announced looking
for acquisition w/
large cash stock

2.6 x

Debt / EBITDA

- Cash & Short Term Investments

$17

$15

P / TBV

Market Capitalization

$18

6.5 x

$14.90 /
10.09

Beta 5Y
EPS

P/E

$13

$12
1

$11

Earnings Call
Followed by
AGM

$10

$9

0.3
$601.9

$8
May-14

Aug-14

Nov-14

Volume
Source: Capital IQ as of May 18, 2015 except May
19 Share Price

Feb-15
Price
May 2015

Volume (millions)

52 wk
High/Low

$14.43

Price per Share

May 19 Share
Price

1YR Price Volume Chart

Company Overview
Net1 Universal Electronic Payment System (UEPS)
UEPS is a leading provider of alternate payment systems in emerging, cash-based economies with significant
unbanked populations. It is a leader in transaction processing in South Africa, Korea, and Ghana by incorporating
smart-card processing technology.
Users of the system can conduct transactions in remote areas as long as a portable smart card reader is available.
Due to the flexibility of the offline systems, there is a high level of availability and affordability. In South Africa,
UEPS currently distributes pension and welfare payments to over 9m recipients through its SASSA agreement.
UEPSs XeoHealth subsidiary provides healthcare funders/providers in the US with an on-line real-time
management system for healthcare transactions.
UEPS has established foot holes in countries all over the world. The map below helps to depict their global reach.

30+ million cardholders in >10 countries, including ~10m in South Africa.

Source: Company Website, Investor Presentation

May 2015

10

Company Overview
Absolute Return Relative to SA and the US
40%

MSCI South Africa (MXZA)

UEPS

S&P 500

30%
20%
10%

0%
-10%
-20%
May-2014

Jul-2014

Sep-2014

Nov-2014

Jan-2015

Mar-2015

Relevant Expansion Activity

India/UK Expansion w/
Shmart!Pay/Zazoo

Acquired for $1.84M (Insurance)

Acquired for $238.90 (Korea)

Acquired for $9.91M (Healthcare)

Acquired for $106.26M (Mobile)

July 1, 2011

October 29, 2010

February 5, 2015 November 7, 2014

Acquired for $9.14M (Payroll)

March 31, 2010

January 1, 2010

Source: Capital IQ, Company Website, Google

Images for Logos

August 27, 2008

May 2015

11

Company Overview
Senior Management Team
Dr. Serge C. P. Belamant (61)
Chairman, Chief Executive Officer

Herman G. Kotz (45)

Chief Financial Officer

Christopher S. Seabrooke (61)

CEO of Sabvest Limited

CEO since 2000, Dr. Belamant has more than

twenty years of experience in the fields of
relevant technology. From 1996 to 1997, he
served as a Consultant. From October 1989 to
September 1995, Dr. Belamant served as the
MD of Net1 Investment Holdings. 10 years
working as a computer scientist for Control
Data Corporation where he won a number of
international awards.

Mr. Kotz has been CFO, secretary and

treasurer since 2004. He was an article clerk
and audit manager at KPMG in Pretoria,
South Africa, and worked as a business analyst
for the Industrial Development Corporation of
South Africa before he joined our company's
predecessor in 1998. Kotz is a member of the
South African Institute of Chartered
Accountants.

Mr. Seabrooke is CEO and a director of

Sabvest Limited, an investment holding
company listed on the JSE. Formerly,
chairman/deputy chariman of the South
African State Theater/National Arts Council
and Board of Business & Arts SA. Seabrooke
has degrees in Economics & Accounting from
the University of Natal and an MBA from the
University of Witwatersrand.

Alasdair J. K. Pein (54)

Paul Edwards (60)

Dr. Gerhard Claassen (54)

CEO of Ascension Partners

Chairman of Emerging Markets Payment

Holdings

GM - Cryptographic Solutions

Ascension is Cayman-based provider of

investment services. He is a director of
Mundane Int. and director of Ecolutia Services.
1994-2009, Pein served as the CEO of the
Oppenheimer family's private equity business.
2001-2008: director of Arsenal Digital
Solutions. He is a qualified South African CA
and completed his articles with Deloitte in
Johannesburg in 1987.

She has been non-employee vice chairman of

Starcomms Limited, a Nigerian
telecommunications operator since 2005. Prior
to that, Mr. Edwards was the CEO of MTN
Group, a pan-African mobile operator. Mr.
Edwards has a BSc and an MBA from the
University of Cape Town.

Joined in August 2000 and is responsible for

the marketing and business development of
cryptographic solutions. Joined Prism in 2000
as Senior Security Architect. He has been
active in the crypto field since 1985. Was a
crypto projects officer with the Defence Force,
Senior and Chief Cryptologist at the South
African Communication Security Agency.

Dhruv Chopra (39)

Nanda Pillay (42)

Trevor Smit (55)

MD and Country Head of India

GM of CPS & EasyPay

MD at Fihrst

Position since 2013. Served as VP of Investor

Relations at UEPS from 2009-2013. Analyst at
Morgan Stanley, for 5 years covering the IT
Services. 4 years at various investment
management firms including Citigroup AM.
Started career as consultant focused on the
financial services. MBA, from Columbia &
Masters in Economics from Tufts.

Mr. Nanda Pillay serves as a General Manager

of CPS and EasyPay at Net1 Ueps
Technologies Inc. Mr. Pillay joined Net1 Ueps
Technologies in May 2000 and is responsible
for its South African operations, consisting of
CPS and EasyPay.

Source: Capital IQ, Company Website, Google

Images for Logos

Mr. Trevor Smit serves as a Managing

Director of Fihrst at Net1 Ueps Technologies
Inc. Served as VP of Joint Ventures &
Investments of Net1 Ueps Technologies Inc.
Joined Net1 Ueps Technologies in 2007 and
provides governance support to its joint
ventures as the Representative on the various
boards of directors.
May 2015

12

Investment Thesis Outline

I: Current Untapped Markets Available for Astonishing Growth
The first major reason for investment is the macroeconomic factors associated with the
geographic regions UEPS is targeting as well as the trends that push forward their revenue
drivers. Its positioning in key areas in both Africa and the APAC region give it attractive
launch pads for further growth in the future. UEPSs subsidiary EasyPay has 2/3 of
merchants in South Africa. Mobile transactions are up 73%, and lending books are up
56% in South Africa. UEPS is amongst the top 3 payment processors in Korea with over
25% EBITDA margins in recent years. If able to replicate its successful past business
model accurately, and capture much untapped markets in each country it targets, UEPS
has very attractive organic growth opportunities. UEPS was selected by United Nations
World Food Programme in 12 countries and has a strong MasterCard Partnership.

II: Added Flexibility from Removed SASSA Contract

Net1 elected on May 18 to withdraw from major 5 year contract: South Africa Security Agency and shares have
dropped to adjust for potential reduction in revenues. Despite these events, management still has plans for
comprehensive products and services to service all of SAs unbanked citizens. Many of its previous plans were
actually hindered by limitations and constraints of SASSA contract, so their long-term outlook will now be
fundamentally different. Slow reaction in markets to this under-covered stock and a misunderstanding of how the
SASSA contract will affect the company has allowed it remain at depressed valuations.

III: Strong Cash Flows, Low Debt, High Margins, and Healthy Financial Statements
UEPSs financial statements indicate very
healthy figures. Debt is 11.5% of capitalization.
The company has more cash & equivalents to
offset debt (in fact, it has negative net debt). In
terms of historical performance, it has had
consistent growth in historical and estimated
UFCF. Furthermore, it has positive net income
as far as 1999 and recovering EBIT margin
from 2013 fall investments.

2012 13
56.8

56.9

Corruption
Allegations

UEPS UFCF
43.5

49.1

55.2

59.8

65.6

26.8
2.1

2010

2011

-31.4
2012

2013

2014 | 2015E

Source: Company Website, Investor Presentation, World

Bank, Capital IQ

2016E

2017E

2018E

May 2015

2019E

13

Investment Thesis I
I: Largely Untapped Markets Available for Astonishing Growth
Mobile Payment's Share of Global
Payment Transactions
20.0%
19.0%
18.0%
17.0%
16.0%
15.0%
14.0%
13.0%

12.0%
11.0%
10.0%

12-Dec

13-Mar

13-Jun

13-Sep

13-Dec

Global mobile payment transactions will generate $235.4

billion this year, growing 44% over last year's US$163.1
billion. Asia Pacific will account for $74 billion driven by
growth in Singapore, India, and Korea. At the moment,
Africa is largest region for mobile transaction value, but by
2016, Asia is expected to surpass it. With exposure in both
areas, UEPS is well-positioned to take advantage of organic
growth of mobile users and growth of mobile payments per
user. UEPSs exposure in both Africa and Asia demonstrate
successful pilot programs that could be replicated well once
it decides to pursue more aggressive growth strategies.
Operations have already begun in UK, India, Hong Kong,
and Nigeria.

Organic Growth Opportunities in Asia and Africa vs. Payment Processing in North America or Europe
Saturated Markets
Ex. North America,
Europe
Increasing customers
means stealing
customers from
competitors. Industries
like these are based on
marketing and service
differentiation and
stagnant revenue
drivers.

Unsaturated
Markets
Ex. Africa, Asia
Acquired customers will
be organic who have
never used the service.
Growth in all drivers
provides opportunity to
access customers with
no prior banking service
experience before.
Source: Etoro, Desinationz, Znet, Visa, Company Website

May 2015

14

Investment Thesis II
II: Added Flexibility from Removed SASSA Contract
Negative Side of SASSA Contract
Price / LTM Normalized EPS
11.0 x

9.0 x

7.0 x

5.0 x

14- 14-Jun 14-Jul 14- 14-Sep 14- 14- 14- 15-Jan 15-Feb 15- 15May
Aug
Oct Nov Dec
Mar Apr

As a result of SASSA tender, UEPS has receive a tarnish

on their reputation as they were accused with fraud. The
negative implications of the association has prevented
achievement of goals. For instance, its P/E has been
static/decreasing although profitability continuously
improved. Terms in the agreement have stifled growth
of company. The contract forces UEPS to maintain
prices that are competitive although they may not be
profitable. Moreover, there are contingent factors
associated with relying on a contract and a discount in
place based on investor uncertainty.

Overhang of False Corruption Charges

April 1, 2012: SASSA awarded UEPS a contract to be able to distribute social grants on a national basis to 9.6m
recipients. Closing following the event, another contractor, upset with the decision, and who had lost the bid, decided
to challenge the award in court. The company alleged that UEPS has used corruption and bribery to obtain the award.
The case eventually went to the South African Supreme Court after a large incidence in the media. The supreme court
ruled in favor of Net 1. The Constitutional Court in South Africa ruled in November 2013 that the tender process
followed by SASSA was "constitutionally invalid and no wrongdoing was found to be conducted on Net 1's part. The
mistake was in fact on SASSAs part as they did not follow a correct procedure for reviewing and awarding the South
African social grant contract. UEPSs contract was suspended during the court process. Thus, UEPS received large
negative attention and negative looking financial statements in 2012-13. In summary, UEPS received a depressed
valuation due to a false accusation.
As a result of our SASSA tenders, in many ways, our main [reputation] has been tarnished, mainly due to launches
launched by the Bancorp Bank Group, and prevented us from achieving our goals in many different areas of our business.
Our P/E ratio has remained static, although our profitability has continuously improved, not only because of the SASSA
contracts, as many of our detractors believed, but through our other new initiatives as well.
Source: Company Website, Investor Presentation, Capital
IQ, Seeking Alpha, Alpha Gen Capital

May 2015

15

Investment Thesis II
II: Added Flexibility from Removed SASSA Contract
Unlikely Transfer of SASSA Contract
If you're the South African government, and right now, you're
providing benefits for 10 million people in which globally has
been acknowledged to be one of the most efficient platforms,
saving them lots of money and everything is good. And all of a
sudden, you're now faced with the possibility of you walking
away and Company B coming in and they have no idea they
have tremendous switching cost for us in a country that's not
exactly politically stable. Can't they be all of a sudden getting
very scared and they say to themselves, "You know what? We
can't afford to have with all other problems yet one walking
away. Maybe, we just won't award that contract and to actually
ask that one to stay with its current terms.

UEPS will continue to walk in footsteps of financial

revolution it has already capitalized. In event of SASSA
not awarding a new contract, UEPSs current contract
will expire in March 31, 2017 and there will be no
change in outlook. It is expensive for the government to
transition from one of the most efficient global platforms
providing benefits for 10 million people. Considering
South Africa and its politically instability with upcoming
elections, it will be hard for politicians to convince 10
million people to move from a working system to a
questionable one. A new bidder will also have less
efficient expenses relative to UEPS.

Limited Downside Risk in Event of Transfer

According to the RFP, SASSA envisions
that after it negotiates service level
agreements with the winning bidder, we
should expect it to take approximately 1
month. And that particular bidder goes
through its gearing-up process for
approximately 3 further month. It will
then take a further 6 to 12 months after
this to complete the phasing in of the new
contractor while phasing us out. In short,
our visibility on our financial outlook for
most is not all of fiscal 2016 remains very
good.

The bidding process should take 4

months and a further 6 - 12 months
to phase out of UEPS and phase in of
new contractor. Thus, there will be
minimal impact on fiscal 2016 results.
In fact, UEPS management plans to
scale services regardless of SASSAs
decision. The new RFP contract does
not allow new providers to provide
financial services, so EasyPay
customers will remain with the
company. UEPS has built up brand
credibility for EasyPay.
Source: Company Website, Investor Presentation, Capital
IQ

Positive Future Guidance

UEPS currently plans to deploy
EasyPay Everywhere bank
account, biometric ATMs and
mobile portal, provision of cheap
micro loans, insurance products,
and prepaid airtime/connectivity.
Benefits from the approach will
far exceed benefits from being
successful bidder for SASSA RFP.
Financial results from these
activities will offset slack from
losing direct SASSA business
overtime.
May 2015

16

Investment Thesis II Expansion

II Variant View: What Investors are Incorrectly Perceiving
Overemphasis on SASSA Contract
We have leaped through potential contracts and the creation of SASSA that culminated in the award to us of the SASSA national
tender in 2012. We are proud with our achievements that the State of Africa is a leader in social welfare delivery solutions, an
achievement that has been recognized worldwide. We have banked 10 million people, with just 22 million, eliminated fraud of ZAR
3 billion per annum for the South African government and have implemented solutions to protect the plan.

In the past, UEPS has remained at depressed levels because of its reliance on the SASSA contract. Although the
contract with the South African government was vital in developing itself earlier, what investors are now
misinterpreting is its capability to operate without the contract. Coupled with the fact that the SASSA contract would
end in 2017, UEPSs valuation to date has reflected limited growth and a heavy reliance on the South African
government. An author on Seeking Alpha, Alpha Gen Capital posted in October 29 a title of a PRO article detailing
that Net 1 UEPS Technologies: SASSA Contract Likely To Be Re-Awarded Boosting Shares. Utilizing this
interpretation and the large drop in UEPS share price on the Johannesburg exchange following the May 18
announcement that it would withdraw from the tender, many investors are pessimistic on the stock. I believe they have
misinterpreted this relationship and are perceiving what should be good news as bad news.
In the end, we concluded that the financial and functional constraints contained in the new RFP, along with the almost certain
risk of lengthy and costly litigation and further unsubstantiated attempts to tarnish the company's reputation left us with no other
option than to withdraw from the RFP and to pursue our stated strategy with vigor.

During a special May 18 call, management outlined in the excerpts above and below the rationale behind their
decisions and their future outlook. In the past, the contract limited them significantly in terms of sustainability.
Because of the contract nature of their relationship with the government, UEPS could never be viewed as a sustainable
business and thus left a negative overhang. Furthermore, it was hard to rationalize whether the company could
successfully replicate its business model in other countries if it did not have similar government relationships like it did
in South Africa. UEPS did not have the expertise to operate as a company independent to the government in the past.
However, I believe now considering its past successful in building a system recognized as a leader worldwide and its
shift to be more independent from the government, UEPS is successfully working towards becoming more sustainable
and will become more appealing to future investors.
Over time, we believe that this approach will ensure a sustainable business mobile that will far exceed the benefits that could be
realized from being the successful bidder for the SASSA RFP and that the financial results of these activities will offset any
potential slack from losing the direct SASSA business overtime.
Source: Company Website, Investor Presentation, Capital
IQ, Seeking Alpa, BizNews, Alpha Gen Capital

May 2015

17

Investment Thesis II Expansion

II Variant View: What Investors are Incorrectly Perceiving
Discount Despite Larger Market
UEPS traded at a steep discount to many of its peers. This can largely be attributed towards some of the past arguments
brought up, but also because it is the only main transaction processing system worldwide that operates in Africa. In fact,
its operations are in the two geographical markets which are and will continue to become the largest markets in the
world. In most cases, companies operating in developed countries trade at a premium because of the stability and
abundance of experienced customers. However, I would argue that UEPS is in fact better positioned as it is the sole
major provider of transaction processing in Africa and has access to a market that is similar in case to North American
and Europe combined. North American and Europe are oversaturated with competition already and this will may it
difficult to maintain margins or grow organically. In Africa or Asia where less competition exists, UEPS should be able
to leverage their position to capture larger market share while maintaining a monopoly/oligopoly grip over the regions. I
think UEPS should either in line with its competitors in the developed regions because of its stronger relative
positioning. Although the wealth of African customers may not be as large, their middle class is growing at a much
faster rate than Europe/North America which will allow for rapidly increasing margins.

Forecast for Mobile Payment Users Worldwide

Geographical Revenue Segments for Comps

APAC

Africa

North America

PAX Global

99%

Cardtronics
Global Payments

Europe
1%

69%
10%

28%
71%

Heartland

100%

Euronet

100%

UEPS

25%
0%

20%

Source: Company Website, Investor Presentation, Capital

IQ

23%

73%
40%

60%

80%

May 2015

100%

18

Investment Thesis III

III: Strong Cash Flows, Low Debt, High Margins, and Healthy Financial Statements
UEPS has experienced consistent long-term growth in revenue generation with ~20% CAGR over last 5 years driven by
increasing trends and international expansion. Margins have recovered from 2013 in which corruption allegations and
temporary suspension of SASSA reduced margins dramatically. Both DAX Global and Net1 have negative net debt,
however relative to American traded comps, UEPS has lowest D/E showing high liquidity. Its Price / Book Value is solid
around 1.5 x range while peer group trades at significant premium of 6.0x+. Multiples use to trade in line during 2009
with peer companies but remain static compared to peers.

Consistent Revenue Generation

Relative Margins
EBIT Margins
EBITDA Margins

$582

19% 19%

$452

14%

$390
$343

5%

$280

8%

Heartland

2010

2011

2012

2013

Euronet

150%

16%

PAX Global

Global
Payments

Cardtronics Net 1 Ueps

Historical P/BV vs. Comps

8.00x

(-$51m
Net Debt)

UEPS

6.00x
4.00x

100%
50%
0%

23%

12%

2014

250%

23%

21%

10%

Debt/Equity % within American Comps

200%

30%

2.00x
Net 1 Ueps

Euronet

Global Heartland Cardtronics

Payments

0.00x

2008

Source: Company Website, Capital IQ

2009

2010

2011

2012

2013

May 2015

2014

2015

19

Catalysts & Risks

Catalysts

Risks

SASSA Bidder Government Award (By October 15):

Whether or not another bidder will receive the
contract will prove as trigger. At the moment, there is
discount applied to stock based on hesitant outlook for
company.
Financial Results (June 30/Sep 30): Fears of revenue
lost from SASSA contract is currently priced in. By
delivering consistent performance in the future like
they have in the past (minus 2013 because of SASSA
corruption accusation), UEPS will gain more traction.
Analyst Coverage Initiation: There are little equity
research reports available for company and only 2
analysts from smaller firms: Janney Montgomery Scott
and RW Baird. Its confusing business model and its
lack of operations in a developed country have most
likely allowed it to be overlooked so far.
International Expansion and Results: Results delivered
in its many global regions such as ZAZOO in the UK
will increase its recognition and trigger multiple
expansion back to its peer group average. Large cash
hints at possible acquisition in near future.
Conference Investor Presentations: This will alleviate
hesitation surrounding the company. Management
team was very helpful in providing information
through email or earning Q&A, but transparency is
hard to find for average investor who does not attend
actively ask questions or do their due diligence work.

Shift in Global Trends: Company is dependent on

growth in mobile use and mobile payments. Emerging
technology that threatens the use of mobile wallets or
payments may change trends.
Foreign Exchange: Having such a large international
exposure, fluctuation in foreign currencies such as the
South Korean Won or South African Rand could
change financial forecasts.
New Competitors: Having a large position in South
Korean and South African areas, new entrants could
reduce market share. This will likely be offset by
growing positions internationally. Concentration in
just two areas means lack of diversification.
Change in Key Management Players: Retiring of some
of the older management team players could lead to
setbacks as each member of the team is specialized in
fairly niche areas such as by business operations or
geography. Large growth may also present interesting
challenges on how to restructure management roles.
Government Policy and Contract Changes: UEPS is
still dependent on the SASSA contract till 2017 if a
new bidder is not selected. If the government forces
legislative changes, negative implications could follow.
UEPS is trying to become less dependent on the
government by withdrawing from the RFP process.
Furthermore, introduction of antitrust laws could
hinder their expansion.

Continuance of consistent financial performance

will remain important will help to clear
hesitation surrounding stock.

Beyond macroeconomic tailwinds, high exposure

to primarily two regions, new competitors, and
changing mechanics pose risks.

Source: Company Website, Investor Presentation, World

Bank, Capital IQ

May 2015

20

Valuation
Public Company Comparables
(In millions, except per share data)
Stock Price
Company Name
19/05/2015
Euronet Worldwide, Inc.
61.36
Heartland Payment Systems, Inc.
53.24
Global Payments Inc.
105.38
Cardtronics Inc.
38.24
PAX Global Technology Limited
1.57

% of 52-Week
High
Low
99.0%
139.7%
94.6%
133.5%
99.4%
156.8%
95.6%
136.4%
97.9%
283.9%

Shares
Out.
51.9
36.6
66.5
44.9
1,111.0

Market
Cap
3,183.3
1,948.5
7,003.3
1,715.9
1,745.7

Enterprise
Value
3,131.9
2,492.9
8,569.1
2,369.2
1,496.3

Revenue
LTM
1,706.0
2,390.6
2,741.1
1,091.7
306.1

CY+1
1,760.9
795.9
2,841.2
1,184.1
404.5

EBITDA
LTM
CY+1
234.8
273.7
179.3
213.9
579.6
616.5
246.5
296.4
59.0
80.5

EPS
LTM
CY+1
1.72
3.02
0.95
2.82
3.83
5.12
0.95
2.82
0.05
0.06

Median
Mean

53.24
51.96

97.9%
97.3%

139.7%
170.1%

51.9
262.2

1,948.5
3,119.4

2,492.9
3,611.9

1,706.0
1,647.1

1,184.1
1,397.3

234.8
259.9

273.7
296.2

0.95
1.50

2.82
2.77

Net 1 Ueps Technologies Inc.

14.43

96.8%

143.0%

46.6

672.5

621.9

644.4

617.8

190.25

163.93

2.10

2.23

CY+2
1.64x
2.91x
2.81x
1.87x
2.87x

LTM
13.3x
13.9x
14.8x
9.6x
25.4x

TEV/EBITDA
CY+1
11.4x
11.7x
13.9x
8.0x
18.6x

CY+2
10.1x
10.5x
12.2x
7.3x
13.8x

LTM
35.7x
56.2x
27.5x
40.1x
34.5x

P/E
CY+1
20.3x
18.9x
20.6x
13.6x
24.7x

CY+2
17.8x
16.5x
18.2x
12.1x
19.1x

LT Growth
Company Name
Rate (%)
Euronet Worldwide, Inc.
14.7
Heartland Payment Systems, Inc.
15.2
Global Payments Inc.
11.8
Cardtronics Inc.
14.0
PAX Global Technology Limited
32.5

Est. 1 Year Growth (%)

Revenue
EBITDA
5.8
12.7
18.3
42.5
8.4
11.7
12.3
16.7
32.1
33.6

LTM
1.84x
1.04x
3.13x
2.17x
4.89x

TEV/Revenue
CY+1
1.78x
3.13x
3.02x
2.00x
3.70x

Median
Mean

14.7
17.6

12.3
15.4

16.7
23.4

2.17x
2.61x

3.02x
2.73x

2.81x
2.42x

13.9x
15.4x

11.7x
12.7x

10.5x
10.8x

35.7x
38.8x

20.3x
19.6x

17.8x
16.8x

Net 1 Ueps Technologies Inc.

10.0

5.5

15.3

0.97x

1.01x

NA

3.3x

3.8x

3.6x

6.9x

6.5x

6.3x

(56%)
(63%)

(67%)
(63%)

NA
NA

(77%)
(79%)

(67%)
(70%)

(66%)
(67%)

(81%)
(82%)

(68%)
(67%)

(65%)
(63%)

Premium (Discount) to Median

Premium (Discount) to Mean

Trades at approximate 70% discount to the industry with a larger discount around LTM metrics. 2015E
metrics suggest an implied price of ~$50 thus suggesting more than a 200% upside. UEPS is at the minimum
low range of all multiples.
Euronet concentrates on Europe, Heartland on US, Global mostly on US/Europe/Canada and a bit in APAC,
Cardtronics in US/Europe/Mexico, PAX in HK/PRC. EasyPay competitors in SA: BankServ. KSNET
competitors in SK: KICC, NICE, First Data Korea.
Since all of its competitors do operate primarily in the Europe and Canadian regions, it is fair to assume that
UEPS should be trading at a discount. There are no companies which are publically traded and similar in
nature to UEPS in the Asian and African regions specifically. As a result, comparables were not used in
determining the final price target.

Source: Capital IQ, Seeking Alpha

May 2015

21

Valuation
Revenue Breakdown: Drivers and Conservative, Base, and Optimistic Cases
PROJECTED REVENUES
(USD in millions, except per share data)

Total Revenue
Annual Growth

2010
280.4

Share of People with Smartphone Access

2011
343.4
22.5%

2012
390.3
13.6%

2013
452.1
15.9%

16.0%

South African Population (M people)

52.3

South Korean Population (M people)

50.0

South Africa and Korea / World Population

1.5%

20.2%
26.3%
223
85.8%
7,076.7
1.1%
53.0
1.4%
50.2
0.4%
1.5%

1,753.2

3,252.0

35.5

35.5

49,358.1

91,554.5

7.91

4.94
-38%

Global Mobile Transaction Value ($bn)

120

Global Population (M people)

7,000.0

South Africa/Korea Mobile Transaction Value ($M)

UEPS Revenue Per Payment ($/ 000's transaction)
South Africa/ Korea Payment Volume (M)

UEPS Captured Market

Average Revenue Per Market Volume ($ / 000's transaction)

Total Revenue Cases

Fiscal Year
2014
581.7
28.6%

Ending June
|
2015E
2016E
2017E
2018E
2019E
|
646.1
753.9
876.7
984.5
1,120.4
|
11.1%
16.7%
16.3%
12.3%
13.8%
|
24.4% |
28.0%
31.2%
33.8%
35.8%
37.8%
20.8% |
14.8%
11.4%
8.3%
5.9%
5.6%
393 |
691
1,077
1,476
1,845
2,214
76.2% |
75.8%
55.9%
37.0%
25.0%
20.0%
7,154.3 |
7,232.7
7,312.0
7,392.1
7,473.1
7,555.0
1.1% |
1.1%
1.1%
1.1%
1.1%
1.1%
53.7 |
54.4
55.2
55.9
56.7
57.4
1.4% |
1.4%
1.4%
1.4%
1.4%
1.4%
50.4 |
50.7
50.9
51.1
51.3
51.6
0.4% |
0.4%
0.4%
0.4%
0.4%
0.4%
1.5% |
1.5%
1.5%
1.4%
1.4%
1.4%
|
5,720.7 |
10,040.3
15,621.0
21,370.5
26,666.5
31,944.7
|
35.5 |
35.5
35.5
35.5
35.5
35.5
|
161,054.8 | 282,666.7
439,781.3
601,645.7
750,746.3
899,343.9
|
|
Base - Contract Not Given Out & Minor Success in New Business Plan
|
41.67%
42%
42%
42%
42%
Conservative - Contract Given Out
|
29%
29%
29%
29%
29%
Optimistic - Contract Not Given Out & Major Success in New Business Plan
|
58%
58%
58%
58%
58%
|
3.61 |
5.49
4.11
3.50
3.15
2.99
-27% |
52%
-25%
-15%
-10%
-5%
|
Base
|
646.1
753.9
876.7
984.5
1,120.4
|
11%
16.7%
16.3%
12.3%
13.8%
Conservative |
452.3
527.7
613.7
689.2
784.3
|
-22%
16.7%
16.3%
12.3%
13.8%
Optimistic
|
904.5
1,055.5
1,227.3
1,378.3
1,568.6
|
56%
16.7%
16.3%
12.3%
13.8%
|

CAGR
2015-2019
14.8%

7.8%
33.8%
1.1%
1.4%
0.4%

33.6%

33.6%

(14.1%)

14.8%
14.8%
14.8%

Commentary:
Top-down analysis was taken by looking at a study for the projected growth of the global mobile transaction
industry. To be conservative, it was assumed UEPS would still only be in South Africa and South Korea.
Using the two countries relative to the world population, market value was determined. The captured rate was
determined on rough estimates for UEPSs current market shares. In South Africa, it was assumed they have
of the market with the only major competitor as BankServ. In South Korea, they are among the top 4
players which take up 65% of the market. of 65% was taken. Average revenue per market volume was
given as an approximation by management in their March 18 special events call.
Further Links, Readings, and References:
http://www.pymnts.com/news/2014/can-apple-with-nfc-ignite-mobile-payments/#.VW8W5_lVhHw
http://www.businessinsider.com/a-primer-on-the-mobile-payments-market-2013-9
http://dazeinfo.com/2014/01/23/smartphone-users-growth-mobile-internet-2014-2017/
Source: Company Website, Company Executives, DazeInfo, United Nations,
World Bank, Capital IQ, Business Insider

May 2015

22

Valuation
Discounted Cash Flow Analysis
Present Value of Equity @ May 19, 2015
PV of 2015 Free Cash Flow Stub(1)
PV of 2016-2019 Free Cash Flows(1)
PV of Terminal Value(1)
Enterprise Value
Less:
Total Debt
Preferred Stock
Minority Interest
Plus:
Cash and Equivalents
Equity Value

5.0
184.3
1,102.7
1,292.0

Shares Outstanding
Implied Per Share Value
Current Price
Premium/(Discount) to Current Price

46.6
28.81
14.43
99.6%

% of TEV
0.4%
14.3%
85.3%
100.0%

(60.0)
0.0
(0.3)

% of MVE
0.4%
13.7%
82.1%
96.2%
(4.5%)
0.0%
(0.0%)

111.0
1,342.6

NasdaqGS:UEPS
WACC
9.67%
10.17%
10.67%
11.17%
11.67%

4.0x
24.87
24.47
24.08
23.69
23.31

Equity Value per Share

EBITDA Exit Multiple
4.5x
5.0x
5.5x
27.33
29.78
32.24
26.88
29.29
31.70
26.44
28.81
31.17
26.01
28.33
30.66
25.59
27.87
30.15

6.0x
34.70
34.11
33.54
32.98
32.43

8.3%
100.0%

DCF result used to derive price

target due to conservative results
relative to comparables and
precedents.

PROJECTED CASH FLOWS

(USD in millions, except per share data)

Total Revenue
Annual Growth
Cost of Revenue
Margin
EBITDA
Annual Growth
Margin
Less: Depreciation and Amortization
% of Capital Expenditure
EBIT
Annual Growth
Margin
Less: Income Taxes
32.8%
Unlevered Net Income
Plus: Depreciation and Amortization
Less: Capital Expenditure
Margin
Less: Additions to Intangibles
Less: Increase in Working Capital
Margin
Unlevered Free Cash Flow
Annual Growth

2010
280.4
73.0
26.0%
127.1
45.3%
19.3
708.7%
107.8
38.4%
(35.4)
72.4
19.3
(2.7)
(1.0%)
0.0
(32.2)
(11.5%)
56.8

2011
343.4
22.5%
109.9
32.0%
119.9
(5.7%)
34.9%
34.7
230.3%
85.2
(21.0%)
24.8%
(27.9)
57.3
34.7
(15.1)
(4.4%)
0.0
(20.0)
(5.8%)
56.9
0.1%

2012
390.3
13.6%
141.0
36.1%
111.9
(6.7%)
28.7%
36.5
93.2%
75.4
(11.5%)
19.3%
(24.7)
50.6
36.5
(39.2)
(10.0%)
0.0
(79.4)
(20.3%)
-31.4
(155.3%)

2013
452.1
15.9%
196.8
43.5%
63.8
(43.0%)
14.1%
40.6
178.5%
23.2
(69.3%)
5.1%
(7.6)
15.6
40.6
(22.7)
(5.0%)
0.0
(6.6)
(1.5%)
26.8
(185.4%)

Fiscal Year Ending June

2014
|
2015E
581.7 |
646.1
28.6% |
11.1%
260.2 |
289.1
44.7% |
44.7%
153.4 |
193.0
140.5% |
25.9%
26.4% |
29.9%
40.3 |
49.1
168.5% |
154.8%
113.1 |
143.9
388.2% |
27.3%
19.4% |
22.3%
(37.1) |
(47.2)
76.0 |
96.7
40.3 |
49.1
(23.9) |
(31.7)
(4.1%) |
(4.9%)
0.0 |
0.0
(90.3) |
(70.6)
(15.5%) |
(10.9%)
2.1 |
43.5
(92.3%) |
2005.9%

Source: Capital IQ, Company Website

2016E
753.9
16.7%
337.3
44.7%
225.2
16.7%
29.9%
52.2
141.1%
173.0
20.2%
23.0%
(56.8)
116.3
52.2
(37.0)
(4.9%)
0.0
(82.4)
(10.9%)
49.1
12.9%

2017E
876.7
16.3%
392.2
44.7%
261.9
16.3%
29.9%
54.8
127.4%
207.1
19.7%
23.6%
(67.9)
139.2
54.8
(43.0)
(4.9%)
0.0
(95.8)
(10.9%)
55.2
12.3%

2018E
984.5
12.3%
440.5
44.7%
294.1
12.3%
29.9%
54.9
113.7%
239.2
15.5%
24.3%
(78.5)
160.8
54.9
(48.3)
(4.9%)
0.0
(107.6)
(10.9%)
59.8
8.4%

2019E
1,120.4
13.8%
501.3
44.7%
334.7
13.8%
29.9%
55.0
100.0%
279.8
17.0%
25.0%
(91.8)
188.0
55.0
(55.0)
(4.9%)
0.0
(122.4)
(10.9%)
65.6
9.7%

May 2015

CAGR
2015-2019
14.8%

14.8%

2.9%
18.1%

18.1%
14.8%

14.8%
10.8%

23

Valuation
Precedent Transaction Analysis
Announced Between January 1st, 2009 and December 18th, 2014

($ in Millions Except Per Share and Per Unit Data)

Net1 UEPS - Comparable M&A Transactions

Acquirer Name
Nets Holding A/S

Target Name
DIBS Payment Services AB (publ.)

Date
12/18/2014

Transaction
Equity
Value
$
121

4.2 x

18.8 x

FleetCor Technologies, Inc. (NYSE:FLT)

Comdata Network, Inc.

11/14/2014

1,094

6,055

617

172

9.5 x

42.7 x

ServiceLink, L.P.

Black Knight Financial Services, Inc.

01/02/2014

3,117

4,027

1,914

375

2.1 x

11.7 x

Element Financial Corporation (TSX:EFN)

Nexcap Finance Corporation

01/13/2013

20

102

29

23

3.5 x

4.4 x

The Carlyle Group LP (NasdaqGS:CG)

Syniverse Holdings, Inc.

01/13/2011

2,218

2,616

639

305

4.2 x

11.5 x

Net 1 Ueps Technologies Inc. (NasdaqGS:UEPS) KSNET Inc.

10/29/2010

242

229

88

44

2.6 x

8.9 x

Econocom Group SA/NV (ENXTBR:ECONB)

10/28/2010

256

322

1,114

19

0.3 x

8.7 x

08/13/2010

241

200

16

31

12.6 x

28.7 x

10/29/2010

242

229

88

44

2.6 x

8.9 x

Mean
Median

839
242

1,544
229

504
88

113
44

4.6 x
3.5 x

16.0 x
11.5 x

Tricadia Capital LLC

Econocom France SAS

Tiptree Financial Inc.

(NasdaqCM:TIPT)
Net 1 Ueps Technologies Inc. (NasdaqGS:UEPS) KSNET
Inc.

Transaction
Enterprise
Value
$
113

Operating Metrics
Revenue
EBITDA
$
27 $
6

Valuation Multiples
EV /
EV /
Revenue
EBITDA

All valuation multiples listed are LTM metrics from transaction close date. Its comparable companies
were either International Financial Services or Data Processing companies with transaction value
between $200M and $7B. UEPSs revenue and EBITDA multiples are 3.3 x and 0.97 x respectively. Even
considering a 20% control premium, trades at more than a 100% discount to past transactions.
Precedents weighed less heavily compared to other indicators to be more conservative. Implied upside
consensus around the $50 implying over a 200% upside with control premium. NET1 UEPS likely to
receive potential lower valuation because of South African base and higher discount rate which should
be used (factored into WACC for DCF), however last transaction of UEPS acquisition of KSNET may
provide more relevant metrics,

Source: Capital IQ, Company Website

May 2015

24

Recommendation
Alternatives
Act as Acquisition Target:
UEPS has many exemplary LBO characteristics. Its
low P/E multiple means that in the event of it being
acquired, there will likely be an accretive result for
acquiring company. UEPS has a strong amount of
cash flows, minute debt, abundance of cash, high
margins, rapid historical growth and future potential,
and a competitive advantage within industry.
Pursue International Expansion Through
Acquisitions:
Considering large cash base and unpaid debt amount,
UEPS may continue to grow its reach until
operations until it operations become truly
universal. Through this path, it will retain its
historical growth over past years in ~20% CAGR
region by acquiring subordinates and organic growth.
License Technology Through Joint Ventures:
Partner with existing transaction payment processors
in untouched countries and license out valuable
products, technology, or services.
Brand Proliferation/Improve Recognition:
Despite many growth opportunities, UEPS remains
undervalued. Differing names of many subordinates
may confuse public investors. South African
customers do not pay much attention to stock
because it is listed in NASDAQ. Amalgamating
brands could help improve recognition through
media channels.

Price Target
May 19 Price
22 Month Target
Price

$14.43

Dividend Yield %
Implied Return

99.6%

22 Month Based off

SASSA Contract
Expiry during March
2017

$28.81

Target Price from

DCF

Valuation Summary
Current
Price:
$14.43

Target
Price:
$28.81

Discounted Cash Flow Analysis

DCF 4-6x Exit, 9.7-11.7% WACC Pessimistic
Case
DCF 4-6x Exit, 9.7-11.7% WACC Optimistic
Case
DCF 4-6x Exit, 9.7-11.7% WACC Base Case

$35.98
$18.53

$43.95

$22.52

$26.01

$31.70

Precedent Transaction Analysis

LTM EV / Revenue

LTM EV / EBITDA

$49.34

$64.78

$47.99

$66.46

Public Company Comparables

2015E EV / Revenue

A rare find: a company with characteristics of a

growth stock, but with depressed valuation and
high margins.
Source: Capital IQ

2015E EV / EBITDA
2015E Price / Earnings

$37.21

$41.07

$42.08

$45.81

$43.65

$45.27

$0 $10 $20 $30 $40 $50 $60 $70 $80

May 2015

25

Appendix
Discounted Cash Flow Calculations
WACC ANALYSIS
(USD in millions, except per share data)
Assumptions

Bottom-Up Beta Calculation

Peer Group Tax Rate (for Bottom-Up Beta)

Risk-Free Rate of Return (Rf)(1)
Market Return (Rm)
Size Premium
NasdaqGS:UEPS D/(D+P+E)
NasdaqGS:UEPS D/E
NasdaqGS:UEPS Cost of Debt (Rd)
NasdaqGS:UEPS Cost of Preferred (Rp)
NasdaqGS:UEPS Tax Rate
Risk free rate
Choose
Then

35.1%
7.98% GSAB10YR
NYU Stern
8.6%
2.7%
IBBOTSON
8.2%
8.9%
Size premium
7.4%
and country
0.0%
32.8%
risk premiums

South Africa
South Africa Government Debt - 10 Year

WACC

Average

Levered
Beta
1.819
0.903
1.027
0.516
0.495

Total
Debt
427.5
589.3
2,059.3
674.6
0.0

Mkt. Val.
Equity
3,183.3
1,948.5
7,003.3
1,715.9
1,745.7

Debt/
Equity
13.4%
30.2%
29.4%
39.3%
0.0%

Unlevered
Beta (2)
1.673
0.755
0.862
0.411
0.495

0.952

0.839

Average Unlevered Beta for Comps

NasdaqGS:UEPS D/E
NasdaqGS:UEPS Tax Rate
NasdaqGS:UEPS Levered Beta(3)

0.839
8.9%
32.8%
0.890

WACC Sensitivity Analysis

Market Risk Premium (Rm - Rf)

Multiplied by: NasdaqGS:UEPS Bottom-Up Beta
Adjusted Market Risk Premium
Add: Risk-Free Rate of Return (Rf)(1)
Add: Size Premium
Cost of Equity
Multiplied by: NasdaqGS:UEPS E/(D+P+E)
Cost of Equity Portion

0.6%
0.890
0.6%
8.0%
2.7%
11.2%
91.8%
10.3%

NasdaqGS:UEPS Cost of Debt (Rd)

NasdaqGS:UEPS Tax Rate
After-Tax Cost of Debt
Multiplied by: NasdaqGS:UEPS D/(D+P+E)
Cost of Debt Portion

7.4%
32.8%
5.0%
8.2%
0.4%

NasdaqGS:UEPS Cost of Preferred (Rp)

Multiplied by: NasdaqGS:UEPS P/(D+P+E)
Cost of Preferred Portion

0.0%
0.0%
0.0%

WACC

Ticker
Name
NasdaqGS:EEFTNasdaqGS:EEFT
Euronet Worldwide
NYSE:HPY
NYSE:HPY
Heartland Payment Systems
NYSE:GPN
NYSE:GPN
Global Payments
NasdaqGS:CATMNasdaqGS:CATM
Cardtronics
SEHK:327
SEHK:327
PAX Global Technology

10.7%

NasdaqGS:UEPS
D/(D+P+E)
#
0.00%
#
5.00%
#
10.00%
#
15.00%
#
20.00%
#
25.00%
#
30.00%
#

3.50%
11.2%
10.7%
10.3%
9.9%
9.4%
9.0%
8.5%

#
#
#
#
#
#
#

4.00%
11.2%
10.8%
10.3%
9.9%
9.5%
9.1%
8.6%

#
#
#
#
#
#
#

Pre-Tax Cost of Debt

4.50%
5.00%
5.50%
11.2% #
11.2% #
11.2%
10.8% #
10.8% #
10.8%
10.4% #
10.4% #
10.4%
10.0% #
10.0% #
10.1%
9.6% #
9.6% #
9.7%
9.1% #
9.2% #
9.3%
8.7% #
8.8% #
8.9%

#
#
#
#
#
#
#

9.25%
9.3%
9.0%
8.8%
8.6%
8.4%
8.2%
8.0%

#
#
#
#
#
#
#

10.00%
10.0%
9.7%
9.5%
9.2%
9.0%
8.7%
8.5%

#
#
#
#
#
#
#

6.00%
11.2%
10.8%
10.5%
10.1%
9.8%
9.4%
9.0%

#
#
#
#
#
#
#

6.50%
11.2%
10.8%
10.5%
10.2%
9.8%
9.5%
9.1%

#
#
#
#
#
#
#

12.25%
12.3%
11.9%
11.5%
11.2%
10.8%
10.4%
10.1%

#
#
#
#
#
#
#

13.00%
13.0%
12.6%
12.2%
11.8%
11.4%
11.0%
10.6%

WACC Sensitivity Analysis

NasdaqGS:UEPS
E/(D+P+E)
#
100.00%
#
95.00%
#
90.00%
#
85.00%
#
80.00%
#
75.00%
#
70.00%
#

8.50%
8.5%
8.3%
8.1%
8.0%
7.8%
7.6%
7.4%

Cost of Equity
10.75%
#
10.8% #
#
10.5% #
#
10.2% #
#
9.9% #
#
9.6% #
#
9.3% #
#
9.0% #

Source: Company Website, SEC Filings, Investor Presentation, Bloomberg, Capital IQ,
NYU Stern, IBBOTSON

11.50%
11.5%
11.2%
10.8%
10.5%
10.2%
9.9%
9.5%

May 2015

26

Appendix
Discounted Cash Flow Calculations
SENSITIVITY ANALYSIS
(USD in millions, except per share data)

NasdaqGS:UEPS
WACC
9.67%
10.17%
10.67%
11.17%
11.67%

Discounted
CF
2015-2019
192.9
191.1
189.3
187.5
185.8

Net Debt(1)
NasdaqGS:UEPS
at
WACC
03/31/15
9.67%
(50.6)
10.17%
(50.6)
10.67%
(50.6)
11.17%
(50.6)
11.67%
(50.6)

NasdaqGS:UEPS
WACC
9.67%
10.17%
10.67%
11.17%
11.67%

=>

4.0x
915.7
898.7
882.1
865.9
850.1

Present Value of Terminal Value

EBITDA Exit Multiple
4.5x
5.0x
5.5x
1,030.2
1,144.6
1,259.1
1,011.1
1,123.4
1,235.8
992.4
1,102.7
1,213.0
974.2
1,082.4
1,190.7
956.4
1,062.6
1,168.9

6.0x
1,373.6
1,348.1
1,323.2
1,298.9
1,275.1

4.0x
1,159.2
1,140.4
1,122.1
1,104.1
1,086.6

4.5x
1,273.7
1,252.8
1,232.3
1,212.4
1,192.8

Present Value of Equity

EBITDA Exit Multiple
5.0x
5.5x
1,388.1
1,502.6
1,365.1
1,477.5
1,342.6
1,452.9
1,320.6
1,428.8
1,299.1
1,405.3

6.0x
1,617.1
1,589.8
1,563.1
1,537.1
1,511.6

Implied Perpetual Growth Rate of FCF

EBITDA Exit Multiple
4.5x
5.0x
5.5x
5.1%
5.5%
5.9%
5.6%
6.0%
6.4%
6.1%
6.5%
6.9%
6.5%
7.0%
7.3%
7.0%
7.5%
7.8%

6.0x
6.2%
6.7%
7.2%
7.7%
8.1%

4.0x
4.6%
5.0%
5.5%
6.0%
6.5%

Source: Capital IQ

Divided
By
46.6
Shrs
=

4.0x
1,108.6
1,089.8
1,071.4
1,053.5
1,035.9

4.0x
24.87
24.47
24.08
23.69
23.31

Present Value of Enterprise

EBITDA Exit Multiple
4.5x
5.0x
1,223.0
1,337.5
1,202.1
1,314.5
1,181.7
1,292.0
1,161.7
1,270.0
1,142.2
1,248.4

Value
5.5x
1,452.0
1,426.8
1,402.2
1,378.2
1,354.7

6.0x
1,566.4
1,539.2
1,512.5
1,486.4
1,461.0

Equity Value per Share

EBITDA Exit Multiple
4.5x
5.0x
5.5x
27.33
29.78
32.24
26.88
29.29
31.70
26.44
28.81
31.17
26.01
28.33
30.66
25.59
27.87
30.15

6.0x
34.70
34.11
33.54
32.98
32.43

Premium/(Discount) to Current Price per Share

EBITDA Exit Multiple
4.5x
5.0x
5.5x
6.0x
89.4%
106.4%
123.4%
140.4%
86.3%
103.0%
119.7%
136.4%
83.2%
99.6%
116.0%
132.4%
80.3%
96.4%
112.5%
128.5%
77.4%
93.2%
109.0%
124.8%

4.0x
72.4%
69.6%
66.8%
64.2%
61.6%

May 2015

27

Appendix
Discounted Cash Flow Calculations
DCF Assumptions
Weighted Average Cost of Capital

Considered current 3.3x

multiple with industry
group of ~14.5x. Gap
decreases in FY2 with
peer group ~10.5x range.
5.0x chosen as moderate
multiple expansion.

10.67%

Terminal EBITDA Multiple

5.0x

Implied Perp. Growth Rate of Unlevered Free Cash Flow(2)

7.8%

Tax Rate

32.8%

WORKING CAPITAL SCHEDULE

(USD in millions, except per share data)
2009
246.8
70.1

2010
280.4
73.0

2011
343.4
109.9

Accounts Receivable
Receivable Days
Inventory
Inventory Days
Other Current Assets
Margin
Total Non-Cash Current Assets

49.5
73.2
7.3
37.8
12.8
5.2%
69.5

52.4
68.2
3.6
18.1
100.4
35.8%
156.3

95.3
101.3
6.7
22.3
202.8
59.0%
304.8

Accounts Payable
Payable Days
Accrued Liabilities
Margin
Other Current Liabilities
Margin
Total Non-Debt Current Liabilties

5.5
28.5
8.3
3.4%
64.0
25.9%
77.8

3.6
18.0
11.0
3.9%
127.0
45.3%
141.6

11.4
37.7
13.0
3.8%
251.6
73.3%
276.0

Total Revenue
Cost of Revenue

Net Working Capital / (Defecit)

(Increase) / Decrease in Working Capital

(8.3)

Fiscal Year Ending June

2013
2014
|
2015E
452.1
581.7 |
824.4
196.8
260.2 |
368.8
|

2016E
1,105.9
494.8

2017E
1,363.7
610.1

2018E
1,581.6
707.6

2019E
1,799.1
804.9

119.7
112.0
10.8
27.9
414.8
106.3%
545.3

81.5
65.8
12.2
22.7
789.8
174.7%
883.5

159.4
100.0
10.8
15.1
780.0
134.1%
950.2

225.9
100.0
15.3
15.1
1,105.6
134.1%
1,346.8

303.1
100.0
20.5
15.1
1,483.1
134.1%
1,806.7

373.7
100.0
25.3
15.1
1,828.8
134.1%
2,227.8

433.5
100.0
29.3
15.1
2,121.0
134.1%
2,583.8

493.1
100.0
33.4
15.1
2,412.6
134.1%
2,939.0

13.2
34.1
16.0
4.1%
439.3
112.6%
468.5

26.6
49.3
14.7
3.2%
773.9
171.2%
815.1

17.1
24.0
15.2
2.6%
760.7
130.8%
793.0

24.2
24.0
21.5
2.6%
1,078.2
130.8%
1,124.0

32.5
24.0
28.8
2.6%
1,446.4
130.8%
1,507.8

40.1
24.0
35.6
2.6%
1,783.6
130.8%
1,859.3

46.5
24.0
41.3
2.6%
2,068.6
130.8%
2,156.3

52.9
24.0
46.9
2.6%
2,353.0
130.8%
2,452.8

222.8

298.9

368.6

427.5

486.2

(65.6)

(76.1)

(69.7)

(58.9)

(58.8)

2012
390.3
141.0

14.8

28.8

76.8

68.4

157.2

(23.1)

(14.1)

(47.9)

8.3

(88.8)

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

Source: S&P Capital IQ

Source: Capital IQ

May 2015

28