Financial services and technology group Lesaka, formerly known as Net1, expects its consumer business to finally break even this quarter. The group hopes the continued turnaround in its business will entice more investors to buy its shares.
The group, valued at R3.45bn on the JSE, has a primary listing on the Nasdaq and a secondary one on the JSE, and uses its banking and payment technology to distribute low-cost financial and value-added services to small businesses and consumers.
CFO Naeem Kola told Business Day the group expects the now loss-making consumer division to become profitable this quarter, which runs from October to December.
“The break even in the consumer [business] is imminent following an ebitda loss for the last quarter of R2m. We’re still reducing costs and changing the model with which we deliver to customers. So, there are cost savings that will come through — you can already see it from the run rate in September. There’s also the improved revenue uplift.” he said.
Kola explained that about 40% of the break even will be down to revenues, while the remaining 60% will be from reducing costs.
The company’s new strategy focuses on growing its SA operations — having just sold off its remaining stake in Liechtenstein-based Bank Frick for $30m — and it has since shut down its international payments unit.
The group is showing progress on its journey to become a profitable company again as it narrowed its net loss to one-fifth year on year to $10.7m (R189.8m) in its latest quarterly results and its headline loss per share, a measure of loss that strips out impairments and one-off items, narrowed by 30.4% to $0.16 (R2.84) per share.
A little-traded stock, CEO Chris Meyer hopes the success of Lesaka’s turnaround will help to drive interest in the share.
“Liquidity continues to be a challenge. We see very small volumes trading in the market. Most of that is in the US as compared to SA on the JSE,” Meyer said in an interview as Lesaka reported results for the three months to end-September.
“I think what we need to see is the value unlock starting to come through, then we might see some more liquidity in the share.”
The group has a small group of shareholders with more than 50% of its equity. Part of the rationale is that some long-term investors may be more willing to sell their shares, thereby increasing the number of shares available to trade, if the value goes up and a decent return is made.
Net1’s image was tainted by the Constitutional Court ruling in 2014 that its payment arm, Cash Paymaster Services (CPS), unlawfully secured the R10bn contract to pay social grants every month between 2012 and 2018.
The company suffered huge losses after the contract was terminated in 2018 when it was challenged in court by one of the unsuccessful bidders, AllPay, which argued the tender process was irregular.
The backlash the company received led to an overhaul of its executive leadership and board in a bid to salvage its operations and position.
Since then, the company closed its loss-making International Payments Group (IPG) business in 2021 and bought the Connect Group on April 14 in a R3.7bn deal that will expand its footprint in the micro, small and medium enterprises (MSMEs) sector in Southern Africa. The Connect Group, founded in 2006, provides fintech solutions to nearly 44,000 MSMEs.
Revenue more than tripled year on year to $124.8m (R2.21bn), driven by the inclusion of Connect for the full fiscal quarter. The bulk of revenue is generated from its merchant (87.7%) and consumer (12%) divisions.
For its 2023 financial year, the company expects to earn revenue of R8.7bn-R9.3bn.
Update: November 9 2022
This article has been updated with new information throughout.
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