Rapid Digitalization In Southern Africa Will Expand Mobile Payments

Key Takeaways

• Expanding digital payments, strategic acquisitions, and platform upgrades are driving higher transaction volumes, operating leverage, and margin improvements.
  
• Growing high-margin services and a diversified revenue base position the company to outpace market growth and benefit from digital transformation in Southern Africa.
  
• Exposure to currency fluctuations, reliance on vulnerable customer segments, rising competition, restructuring risks, and heightened regulatory and technology costs threaten sustainable growth and margins.

Catalysts

Operates as a Fintech company, provides financial services solutions and software in Southern Africa.

• The company is positioned to benefit from the ongoing rapid digitalization and increased smartphone adoption in Southern Africa, as seen in strong year-on-year growth in both Consumer (up 32%) and Merchant (up 58%) division net revenues. This expanding user base and addressable market should drive higher transaction volumes and top-line revenue in future periods.
  
• The shift from cash to electronic and mobile payments across emerging markets, supported by government financial inclusion initiatives and demonstrated by Lesaka's growing installed base of over 89,000 prepaid and payment devices, is fueling transaction and throughput growth-providing a tailwind to recurring revenue and improving net margins through increased platform utilization.
  
• Continued expansion into adjacent, higher-margin services such as lending and insurance (with Consumer division loan book up 59% and insurance policies up 27% year-on-year) is increasing ARPU and cross-sell rates, leading to improved diversification of revenue streams and structurally higher operating margins.
  
• Strategic acquisitions (e.g., Adumo and Recharger) and their integration are materially increasing scale, customer reach, and product depth, setting up the company to outgrow market rates, rapidly expand EBITDA, and support both top-line revenue and margin expansion as synergies are realized.
  
• Technology platform upgrades-such as rollout of a proprietary payment switch, investments in enterprise B2B and annuity utility payment assets, plus cost discipline through business optimization-are creating operating leverage, reducing cost-to-serve, and setting the stage for substantial EBITDA and net margin improvements over the next 12–24 months.

Lesaka Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Lesaka Technologies's revenue will grow by 8.6% annually over the next 3 years.
• Analysts are not forecasting that Lesaka Technologies will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Lesaka Technologies's profit margin will increase from -10.7% to the average US Diversified Financial industry of 15.5% in 3 years.
• If Lesaka Technologies's profit margin were to converge on the industry average, you could expect earnings to reach $114.1 million (and earnings per share of $1.2) by about July 2028, up from $-61.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2028 earnings, up from -5.5x today. This future PE is lower than the current PE for the US Diversified Financial industry at 17.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.28%, as per the Simply Wall St company report.

Lesaka Technologies Future Earnings Per Share Growth

Risks

• Heavy reliance on the South African economy and its currency (the rand) exposes Lesaka to significant currency volatility and persistent macroeconomic instability, which could negatively impact reported revenue and net earnings, especially as operational performance is analyzed in rand but reported in U.S. dollars.
  
• The company's continued dependence on government grant recipients and underbanked populations for its Consumer business may limit diversification and future growth opportunities, especially as these markets mature or if government social grant policies change, potentially compressing future net margins and revenue.
  
• Intensified competition in digital payments and alternative digital products-highlighted by slowed growth in areas like airtime/data sales and growing competition in prepaid-could lead to margin pressure and lost market share, constraining future revenue and profitability.
  
• Recent and ongoing restructuring/reorganizations (including exits from legacy lines, increased operating expenditure, and one-off integration costs) in the Merchant and Enterprise divisions create execution risks, potentially leading to inconsistent earnings and higher operating expenses, impacting earnings growth.
  
• Sector-wide risks such as accelerating regulatory scrutiny (AML/KYC), increasing cyber/data privacy concerns, and commoditization of payment services may drive up compliance and technology costs, while necessitating continual investment in upgrading platforms, thereby eroding operating leverage and suppressing net margins over the long term.

Valuation

• The analysts have a consensus price target of $8.0 for Lesaka Technologies based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $735.8 million, earnings will come to $114.1 million, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 13.3%.
• Given the current share price of $4.35, the analyst price target of $8.0 is 45.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.