We came across a bullish thesis on Lesaka Technologies Inc (LSAK) on ValueInvestorsClub by SpringLafayette. In this article we will summarize the bulls’ thesis on LSAK. Lesaka Technologies shares were trading at $4.50 when this thesis was published, vs. closing price of $4.36 on Sep 17.
An individual using a laptop to access the fintech platform to manage their finances.
Lesaka Technologies Inc. (LSAK) is an emerging powerhouse in the South African fintech space, uniquely positioned with a diverse and innovative suite of services. Originally a mismanaged South African holding company, LSAK underwent a transformative acquisition of the Connect Group in April 2022. This strategic move has since pivoted the company from a struggling entity into a formidable player in the financial technology sector.
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LSAK’s business model is centered around two primary segments. The Merchant Segment, accounting for 75% of the company’s Group EBITDA, is dominated by the Connect Group’s operations. This segment caters to South Africa’s micro-merchant landscape through four key sub-segments: value-added services (such as airtime and prepaid electricity), merchant acquiring, smart safes, and merchant lending. Connect offers an unparalleled end-to-end solution that integrates value-added services, card acceptance, cash management, and lending products. The Merchant Segment’s robust performance is driven by its rapid deployment of payment terminals and substantial growth in payment volumes and loan books. With a strong leadership team under Connect CEO Steve Heilbron, LSAK’s Merchant Segment is poised to continue its impressive growth trajectory.
The Consumer Segment, which represents 25% of the Group EBITDA, focuses on the low-income market, primarily serving 1.4 million active customers who receive SASSA social grants. This segment offers a range of banking products, including depository services, lending, and insurance. Following a major turnaround from a loss-making entity, this segment has achieved a positive EBITDA margin of 24% and is expected to reach a 25% margin soon. The Consumer Segment benefits from the decline of the South African Postbank, capturing a growing share of its former customers.
A significant recent development is the appointment of Ali Mazanderani as Executive Chairman in December 2023. Mazanderani, a renowned fintech investor with a history of successful ventures, brings a wealth of experience from global payments businesses. His vision includes transforming LSAK into South Africa’s leading fintech champion through a combination of organic growth and strategic acquisitions. The company’s first major acquisition under Mazanderani’s leadership was the purchase of Adumo in May 2024. Adumo, a prominent South African competitor, adds substantial value with its ~R200 million EBITDA and extensive customer and merchant base. This acquisition, funded primarily through LSAK shares, not only strengthens the company’s position but is also expected to be highly accretive, potentially increasing LSAK’s share price by 17% in the short term.
Despite these advancements, LSAK shares are trading slightly lower than two years ago, presenting an attractive buying opportunity. The stock currently trades at approximately 9.5 times forward EBITDA, with a projected 20% growth in USD terms. This undervaluation relative to its growth prospects suggests significant upside potential. Over the next year, LSAK shares could rise to $9.34, reflecting a 110% upside based on a 13x forward EBITDA multiple. Over a 2-3 year horizon, the shares could potentially reach $11.28, offering a 2.5x return.
In summary, LSAK represents a compelling investment opportunity. The company’s robust execution in its Merchant and Consumer segments, the strategic leadership of Ali Mazanderani, and the transformative acquisition of Adumo all point to substantial future growth. With the shares currently undervalued and significant upside potential, LSAK is a stock worth considering for those looking to capitalize on the growing fintech sector in South Africa.
LSAK is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held LSAK at the end of the second quarter which was the same in the previous quarter. While we acknowledge the potential of LSAK as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as LSAK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.