UEPS Long - Portrait - Jonathan Chang

8/9/2019 UEPS Long - Portrait - Jonathan Chang

1/28

Upgrade Capital, Seeking Alpha, Bloomberg

Inaugural Ultimate Challenge

May 19

th

, 2015: The Long Case for Net1 UEPS Technologies

An Uncovered Jewel Set to Double: Accessing an Untapped Market

Research Analyst

Jonathan Chang

Queen’s School of Business, 2017 [email protected]+1.613.809.0329


2/28

May 20152

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


3/28

May 20153

Source:

Company Website, World Bank

“2.5 billion adults around the world, or 50% of the world population, do not have bank accounts or

access to financial services.”

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.


4/28

May 20154

Source:


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.

Solution: UEPS Smart Card and Mobile Technology

The Under-Banked or Unbanked

The Global Findex shows ¾ of the world’s poor

do not have a bank account, not only because of

poverty, but also due to costs, travel distance and

paper work involved.


5/28

May 20155

Source:

eMarketer, Business Insider, iDate, Pymnts

Global Mobile Transaction Value ($ Billions)

Worldwide Smartphone Users (Billions)

$120$223

$393

$691

$1,077

$1,476

2012 2013 2014 2015 2016 2017

1.13

1.43

1.75

2.03

2.282.5

2012 2013 2014 2015 2016 2017

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

146278

556

1025

1445

1907

2013 2014 2015 2016 2017 2018


6/28

May 20156

Source:

WorldBank, Myolisi Sikupela, Gartner

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


7/28

May 20157

Source:


“Most mobile solutions offer limited

functionality and ability to use the mobile

device as an actual payments and banking

instrument.”

Online Transaction Processing Services

Mobile Payments

Healthcare

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.

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% ofmarket 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.

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.

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.


8/28

May 20158

Source:

Company Website, Investor Presentation, Thomson One

Analytics

This flexible approach enables UEPS to drive adoption while capturing value through technology

implementation.

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).

Business Segmentation Geographical Segmentation

Transaction

Based

Activities

42%

Financial

Services

33%

International

Transaction-

Based

Activities

25%

South Africa

74%

Korea

25%

International

1%


9/28

May 20159

Source:

Capital IQ as of May 18, 2015 except May

19 Share Price

Financial Metrics

Capitalization Table

-

1

1

2

2

3

4

$8

$9

$10

$11

$12

$13

$14

$15

$16

$17

$18

May-14 Aug-14 Nov-14 Feb-15

V l ( i l l i )

P r i c e p

e r S h a r e

Volume Price

1YR Price – Volume Chart

Announced looking

for acquisition w/

large cash stock

Series of

Sept Insider

Sales

Earnings Call

Followed by

AGM

May 19 Share

Price

$14.43 P / E 6.5 x

52 wk

High/Low

$14.90 /

10.09

EV / Revenue

0.9 x

Market

Capitalization

$631.5 EV / EBITDA

3.0 x

Beta 5Y 1.14 P / TBV2.6 x

EPS $2.10 Debt / EBITDA0.3 x

Market Capitalization $652.5

- Cash & Short Term Investments 111.0

+ Total Debt 60.0

+ Pref. Equity -

+ Total Minority Interest 0.3

= Total Enterprise Value (TEV) $601.9


10/28

May 201510

Source:

Company Website, Investor Presentation

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

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.

UEPS’s 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.


11/28

May 201511

Source:

Capital IQ, Company Website, Google

Images for Logos

Absolute Return Relative to SA and the US

Relevant Expansion Activity

-20%

-10%

0%

10%

20%

30%

40%

May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015

MSCI South Africa (MXZA) UEPS S&P 500

India/UK Expansion w/

Shmart Pay/Zazoo

February 5, 2015 November 7, 2014

Acquired for $1.84M (Insurance)

July 1, 2011

Acquired for $238.90 (Korea)

October 29, 2010

Acquired for $9.14M (Payroll)

March 31, 2010

Acquired for $9.91M (Healthcare)

January 1, 2010

Acquired for $106.26M (Mobile)

August 27, 2008


12/28

May 201512

Source:

Capital IQ, Company Website, Google

Images for Logos

Senior Management Team

Dr. Serge C. P. Belamant (61)

Chairman, Chief Executive Officer

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.

Herman G. Kotzé (45)

Chief Financial Officer

Mr. Kotzé 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. Kotzé is a member of the

South African Institute of Chartered

Accountants.

Christopher S. Seabrooke (61)

CEO of Sabvest Limited

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.

Dhruv Chopra (39)

MD and Country Head of India

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.

Nanda Pillay (42)

GM of CPS & EasyPay

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.

Trevor Smit (55)

MD at Fihrst

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.

Alasdair J. K. Pein (54)

CEO of Ascension Partners

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.

Paul Edwards (60)

Chairman of Emerging Markets Payment

Holdings

She has been non-employee vice chairman of

Starcomms Limited, a Nigeriantelecommunications 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.

Dr. Gerhard Claassen (54)

GM - Cryptographic Solutions

Joined in August 2000 and is responsible for

the marketing and business development of

cryptographic solutions. Joined Prism in 2000as 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.


13/28

May 201513

Source: Company Website, Investor Presentation, World

Bank, Capital IQ

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. UEPS’s 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 Nation’s

World Food Programme in 12 countries and has a strong MasterCard Partnership.

I: Current Untapped Markets Available for Astonishing Growth

II: Added Flexibility from Removed SASSA Contract

III: Strong Cash Flows, Low Debt, High Margins, and Healthy Financial Statements

UEPS’s 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.

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 SA’s 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.

56.8 56.9

-31.4

26.8

2.1

43.5 49.1

55.259.8

65.6

2010 2011 2012 2013 2014 | 2015E 2016E 2017E 2018E 2019E

UEPS UFCF

2012 13

Corruption

Allegations


14/28

May 201514

I: Largely Untapped Markets Available for Astonishing Growth

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

18.0%

19.0%

20.0%

12-Dec 13-Mar 13-Jun 13-Sep 13-Dec

Mobile Payment's Share of Global

Payment Transactions

Source: Etoro, Desinationz, Znet, Visa, Company Website

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. UEPS’s 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

Unsaturated

Markets

Ex. Africa, Asia

Increasing customers

means stealing

customers from

competitors. Industries

like these are based on

marketing and service

differentiation and

stagnant revenue

drivers.

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.


15/28

May 201515

Source: Company Website, Investor Presentation, Capital

IQ, Seeking Alpha, Alpha Gen Capital


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 growthof 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.

Negative Side of SASSA Contract

0 x

0 x

0 x

0 x

14-

May

14-Jun 14-Jul 14-

Aug

14-Sep 14-

Oct

14-

Nov

14-

Dec

15-Jan 15-Feb 15-

Mar

15-

Apr

Price / LTM Normalized EPS

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 SASSA’s part as they did not follow a correct procedure for reviewing and awarding the South

African social grant contract. UEPS’s 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.”


16/28

May 201516


IQ


Unlikely Transfer of SASSA Contract

Limited Downside Risk in Event of Transfer Positive Future Guidance

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 SASSA’s

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.

UEPS will continue to walk in footsteps of financial

revolution it has already capitalized. In event of SASSA

not awarding a new contract, UEPS’s 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 platformsproviding 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.

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.

“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.”

“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.”


17/28

May 201517


IQ, Seeking Alpa, BizNews, Alpha Gen Capital

II Variant View: What Investors are Incorrectly Perceiving

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, UEPS’s 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 .

Overemphasis on SASSA Contract

“In the end, we concluded that the financial and functional constraints contained in the new RFP, along with the almost certa inrisk 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.”

“Over time, we believe that this approach will ensure a sustainable business mobile that will far exceed the benefits that co uld 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.”

“We have leaped through potential contracts and the creation of SASSA that culminated in the award to us of the SASSA nationa l

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.”

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.


18/28

May 201518


IQ

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.

25%

10%

99%

73%

100%

71%

69%

1%

100%

23%

28%

0% 20% 40% 60% 80% 100%

UEPS

Euronet

Heartland

Global Payments

Cardtronics

PAX Global

APAC Africa North America Europe

Forecast for Mobile Payment Users Worldwide Geographical Revenue Segments for Comps


19/28

May 2015

5%

10%

19%

16%

12%

23%

8%

14%

19%21%

23%

30%

Heartland Euronet PAX Global Global

Payments

Cardtronics Net 1 Ueps

EBIT Margins

EBITDA Margins

19Source: Company Website, Capital IQ

III: Strong Cash Flows, Low Debt, High Margins, and Healthy Financial Statements

Consistent Revenue Generation Relative Margins

Debt/Equity % within American Comps Historical P/BV vs. Comps

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.

0.00x

2.00x

4.00x

6.00x

8.00x

2008 2009 2010 2011 2012 2013 2014 201

UEPS

$280

$343

$390

$452

$582

2010 2011 2012 2013 2014

0%

50%

100%

150%

200%

250%

Net 1 Ueps Euronet Global

Payments

Heartland Cardtronics

(-$51m

Net Debt)


20/28

May 201520

Source: Company Website, Investor Presentation, World

Bank, Capital IQ

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.


21/28

May 201521

Source: Capital IQ, Seeking Alpha

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.

Public Company Comparables

n millions, except per share data)

Stock Price % of 52-Week Shares Market Enterprise Revenue EBITDA EPS

ompany Name 19/05/2015 High Low Out. Cap Value LTM CY+1 LTM CY+1 LTM CY+1

uronet Worldwide, Inc. 61.36 99.0% 139.7% 51.9 3,183.3 3,131.9 1,706.0 1,760.9 234.8 273.7 1.72 3.02

eartland Payment System 53.24 94.6% 133.5% 36.6 1,948.5 2,492.9 2,390.6 795.9 179.3 213.9 0.95 2.82

obal Payments Inc. 105.38 99.4% 156.8% 66.5 7,003.3 8,569.1 2,741.1 2,841.2 579.6 616.5 3.83 5.12

ardtronics Inc. 38.24 95.6% 136.4% 44.9 1,715.9 2,369.2 1,091.7 1,184.1 246.5 296.4 0.95 2.82

AX Global Technology Limi 1.57 97.9% 283.9% 1,111.0 1,745.7 1,496.3 306.1 404.5 59.0 80.5 0.05 0.06

edian 53.24 97.9% 139.7% 51.9 1,948.5 2,492.9 1,706.0 1,184.1 234.8 273.7 0.95 2.82

ean 51.96 97.3% 170.1% 262.2 3,119.4 3,611.9 1,647.1 1,397.3 259.9 296.2 1.50 2.77

et 1 Ueps Technologies I 14.43 96.8% 143.0% 46.6 672.5 621.9 644.4 617.8 190.25 163.93 2.10 2.23

LT Growth Est. 1 Year Growth (%) TEV/Revenue TEV/EBITDA P/E

ompany Name Rate (%) Revenue EBITDA LTM CY+1 CY+2 LTM CY+1 CY+2 LTM CY+1 CY+2

uronet Worldwide, Inc. 14.7 5.8 12.7 1.84x 1.78x 1.64x 13.3x 11.4x 10.1x 35.7x 20.3x 17.8x

eartland Payment System 15.2 18.3 42.5 1.04x 3.13x 2.91x 13.9x 11.7x 10.5x 56.2x 18.9x 16.5x

obal Payments Inc. 11.8 8.4 11.7 3.13x 3.02x 2.81x 14.8x 13.9x 12.2x 27.5x 20.6x 18.2xardtronics Inc. 14.0 12.3 16.7 2.17x 2.00x 1.87x 9.6x 8.0x 7.3x 40.1x 13.6x 12.1x

AX Global Technology Limi 32.5 32.1 33.6 4.89x 3.70x 2.87x 25.4x 18.6x 13.8x 34.5x 24.7x 19.1x

edian 14.7 12.3 16.7 2.17x 3.02x 2.81x 13.9x 11.7x 10.5x 35.7x 20.3x 17.8x

ean 17.6 15.4 23.4 2.61x 2.73x 2.42x 15.4x 12.7x 10.8x 38.8x 19.6x 16.8x

et 1 Ueps Technologies I 10.0 5.5 15.3 0.97x 1.01x NA 3.3x 3.8x 3.6x 6.9x 6.5x 6.3x

remium (Discount) to Median (56%) (67%) NA (77%) (67%) (66%) (81%) (68%) (65%)

remium (Discount) to Mean (63%) (63%) NA (79%) (70%) (67%) (82%) (67%) (63%)

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.


22/28

May 201522

Source: Company Website, Company Executives, DazeInfo, United Nations,

World Bank, Capital IQ, Business Insider

Revenue Breakdown: Drivers and Conservative, Base, and Optimistic Cases

ROJECTED REVENUESUSD in m illi ons, except per share data)

Fiscal Year Ending June CAGR

2010 2011 2012 2013 2014 | 2015E 2016E 2017E 2018E 2019E 2015-201

otal Revenue 280.4 343.4 390.3 452.1 581.7 | 646.1 753.9 876.7 984.5 1,120.4 14.8%

Annual Growth 22.5% 13.6% 15.9% 28.6% | 11.1% 16.7% 16.3% 12.3% 13.8%

|

hare of People with Smartphone Access 16.0% 20.2% 24.4% | 28.0% 31.2% 33.8% 35.8% 37.8% 7.8%

26.3% 20.8% | 14.8% 11.4% 8.3% 5.9% 5.6%

obal Mobile Transaction Value ($bn) 120 223 393 | 691 1,077 1,476 1,845 2,214 33.8%

85.8% 76.2% | 75.8% 55.9% 37.0% 25.0% 20.0%

obal Population (M people) 7,000.0 7,076.7 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% 1.1% 1.1%

outh African Population (M people) 52.3 53.0 53.7 | 54.4 55.2 55.9 56.7 57.4 1.4%

1.4% 1.4% | 1.4% 1.4% 1.4% 1.4% 1.4%

outh Korean Population (M people) 50.0 50.2 50.4 | 50.7 50.9 51.1 51.3 51.6 0.4%

0.4% 0.4% | 0.4% 0.4% 0.4% 0.4% 0.4%

outh Africa and Korea / World Population 1.5% 1.5% 1.5% | 1.5% 1.5% 1.4% 1.4% 1.4%

|

outh Africa/Korea Mobile Trans ac tion Value ($M) 1,753. 2 3, 252.0 5,720. 7 | 10, 040.3 15,621. 0 21, 370.5 26, 666.5 31, 944. 7 33.6%|

EPS Revenue Per Payment ($/ 000's transaction) 35.5 35.5 35.5 | 35.5 35.5 35.5 35.5 35.5

|

outh Africa/ Korea Payment Volume (M) 49,358. 1 91, 554.5 161, 054. 8 | 282,666.7 439,781. 3 601, 645.7 750, 746.3 899, 343. 9 33.6%

|

|

EPS Captured Market

| 41.67% 42% 42% 42% 42%

| 29% 29% 29% 29% 29%

| 58% 58% 58% 58% 58%

|

verage Revenue Per Market Volume ($ / 000's transaction) 7.91 4.94 3.61 | 5.49 4.11 3.50 3.15 2.99 (14.1%

-38% -27% | 52% -25% -15% -10% -5%

|

otal Revenue Cases Base | 646.1 753.9 876.7 984.5 1,120.4 14.8%

| 11% 16.7% 16.3% 12.3% 13.8%

Conservative | 452.3 527.7 613.7 689.2 784.3 14.8%| -22% 16.7% 16.3% 12.3% 13.8%

Optimistic | 904.5 1,055.5 1,227.3 1,378.3 1,568.6 14.8%

| 56% 16.7% 16.3% 12.3% 13.8%

|

Base - Contract Not Given Out & Mi nor Success in New Business Plan

Conservative - Contract Given Out

Optimistic - Contract Not Given Out & Major Success in New Business Plan

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/

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 UEPS’s current market shares. In South Africa, it was assumed they have

¾ of the market with the only major competitor as BankServ. In South Korea, they are among the top 4players which take up 65% of the market. ¼ of 65% was taken. Average revenue per market volume was

given as an approximation by management in their March 18 special events call.


23/28

May 201523

Source: Capital IQ, Company Website

Discounted Cash Flow Analysis

PROJECTED CASH FLOWS

(USD in m illi ons, except per share data)

Fiscal Year Ending June CAGR

2010 2011 2012 2013 2014 | 2015E 2016E 2017E 2018E 2019E 2015-201

Total Revenue 280.4 343.4 390.3 452.1 581.7 | 646.1 753.9 876.7 984.5 1,120.4 14.8%

Annual Growth 22.5% 13.6% 15.9% 28.6% | 11.1% 16.7% 16.3% 12.3% 13.8%

Cost of Revenue 73.0 109.9 141.0 196.8 260.2 | 289.1 337.3 392.2 440.5 501.3

Margin 26.0% 32.0% 36.1% 43.5% 44.7% | 44.7% 44.7% 44.7% 44.7% 44.7%

EBITDA 127.1 119.9 111.9 63.8 153.4 | 193.0 225.2 261.9 294.1 334.7 14.8%

Annual Growth (5.7%) (6.7%) (43.0%) 140.5% | 25.9% 16.7% 16.3% 12.3% 13.8%

Margin 45.3% 34.9% 28.7% 14.1% 26.4% | 29.9% 29.9% 29.9% 29.9% 29.9%

Less: Depreciation and Amortization 19.3 34.7 36.5 40.6 40.3 | 49.1 52.2 54.8 54.9 55.0 2.9%

% of Capital Expenditure 708.7% 230.3% 93.2% 178.5% 168.5% | 154.8% 141.1% 127.4% 113.7% 100.0%

EBIT 107.8 85.2 75.4 23.2 113.1 | 143.9 173.0 207.1 239.2 279.8 18.1%

Annual Growth (21.0%) (11.5%) (69.3%) 388.2% | 27.3% 20.2% 19.7% 15.5% 17.0%

Margin 38.4% 24.8% 19.3% 5.1% 19.4% | 22.3% 23.0% 23.6% 24.3% 25.0%

Less: Income Taxes 32.8% (35.4) (27.9) (24.7) (7.6) (37.1) | (47.2) (56.8) (67.9) (78.5) (91.8)Unlevered Net Income 72.4 57.3 50.6 15.6 76.0 | 96.7 116.3 139.2 160.8 188.0 18.1%

Plus: Depreciation and Amortization 19.3 34.7 36.5 40.6 40.3 | 49.1 52.2 54.8 54.9 55.0

Less: Capital Expenditure (2.7) (15.1) (39.2) (22.7) (23.9) | (31.7) (37.0) (43.0) (48.3) (55.0) 14.8%

Margin (1.0%) (4.4%) (10.0%) (5.0%) (4.1%) | (4.9%) (4.9%) (4.9%) (4.9%) (4.9%)

Less: Additions to Intangibles 0.0 0.0 0.0 0.0 0.0 | 0.0 0.0 0.0 0.0 0.0

Less: Increase in Working Capital (32.2) (20.0) (79.4) (6.6) (90.3) | (70.6) (82.4) (95.8) (107.6) (122.4) 14.8%

Margin (11.5%) (5.8%) (20.3%) (1.5%) (15.5%) | (10.9%) (10.9%) (10.9%) (10.9%) (10.9%)

Unlevered Free Cash Flow 56.8 56.9 -31.4 26.8 2.1 | 43.5 49.1 55.2 59.8 65.6 10.8%

Annual Growth 0.1% (155.3%) (185.4%) (92.3%) | 2005.9% 12.9% 12.3% 8.4% 9.7%

Equity Value per Share

NasdaqGS:UEPS EBITDA Exit Multiple

WACC 4.0x 4.5x 5.0x 5.5x 6.0x

9.67% 24.87 27.33 29.78 32.24 34.7

10.17% 24.47 26.88 29.29 31.70 34.1

10.67% 24.08 26.44 28.81 31.17 33.5

11.17% 23.69 26.01 28.33 30.66 32.9

11.67% 23.31 25.59 27.87 30.15 32.4

Present Value of Equity @ May 19, 2015

% of TEV % of MVE

PV of 2015 Free Cash Flow Stub(1) 5.0 0.4% 0.4%

PV of 2016-2019 Free Cash Flows(1) 184.3 14.3% 13.7%

PV of Terminal Value(1) 1,102.7 85.3% 82.1%

Enterprise Value 1,292.0 100.0% 96.2%

Less:

Total Debt (60.0) (4.5%)

Preferred Stock 0.0 0.0%

Minority Interest (0.3) (0.0%)

Plus:

Cash and Equivalents 111.0 8.3%

Equity Value 1,342.6 100.0%

Shares Outstanding 46.6

Implied Per Share Value 28.81

Current Price 14.43

Premium/(Discount) to Current Price 99.6%

DCF result used to derive price

target due to conservative results

relative to comparables and

precedents.


24/28

May 201524

Source: Capital IQ, Company Website

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 valuebetween $200M and $7B. UEPS’s 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,

Precedent Transaction Analysis

nounced Between January 1st, 2009 and December 18th, 2014 ($ in Millions Except Per Share and Per Unit Data)

t1 UEPS - Comparable M&A Transactions Transaction Transaction Operating Metrics Valuation Multiples

Equity Enterprise EV / EV /

Acquirer Name Target Name Date Value Value Revenue EBITDA Revenue EBITDA

s Holding A/S DIBS Payment Services AB (publ.) 12/18/2014 $ 121 $ 113 $ 27 $ 6 4.2 x 18.8 x

etCor Technologies, Inc. (NYSE:FLT) Comdata Network, Inc. 11/14/2014 1,094 6,055 617 172 9.5 x 42.7 x

viceLink, L.P. Black Knight Financial Services, Inc. 01/02/2014 3,117 4,027 1,914 375 2.1 x 11.7 x

ment Financ ial Corporat ion (TSX:EFN) Nexcap Finance Corporat ion 01/13/2013 20 102 29 23 3.5 x 4.4 x

e Carlyle Group LP (NasdaqGS:CG) Syniverse Holdings, Inc. 01/13/2011 2,218 2,616 639 305 4.2 x 11.5 x

1 Ueps Technologies Inc. (NasdaqGS:UEPS) KSNET Inc. 10/29/2010 242 229 88 44 2.6 x 8.9 x

onocom Group SA/NV (ENXTBR:ECONB) Econocom France SAS 10/28/2010 256 322 1,114 19 0.3 x 8.7 x

adia Capital LLC Tiptree Financial Inc. 08/13/2010 241 200 16 31 12.6 x 28.7 x 1 Ueps Technologies Inc. (NasdaqGS:UEPS) KSNET Inc. 10/29/2010 242 229 88 44 2.6 x 8.9 x

Me an 839 1,544 504 113 4.6 x 16.0 x

Median 242 229 88 44 3 .5 x 11.5 x


25/28

May 201525

Source: Capital IQ

Alternatives Price Target

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 stockbecause it is listed in NASDAQ. Amalgamating

brands could help improve recognition through

media channels.

Valuation Summary

A rare find: a company with characteristics of a

growth stock, but with depressed valuation and

high margins.

$43.65

$42.08

$37.21

$47.99

$49.34

$26.01

$18.53

$35.98

$45.27

$45.81

$41.07

$66.4

$64.78

$31.70

$22.52

$43.95

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

2015E Price / Earnings

2015E EV / EBITDA

2015E EV / Revenue

LTM EV / EBITDA

LTM EV / Revenue

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

DCF 4-6x Exit, 9.7-11.7% WACC OptimisticCase

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

Case

Current

Price:

$14.43

Target

Price:

$28.81

Discounted Cash Flow Analysis

Precedent Transaction Analysis

Public Company Comparables

May 19 Price $14.43

22 Month Target

Price $28.81

Dividend Yield % -

Implied Return 99.6%

22 Month Based off

SASSA Contract

Expiry during March

2017

Target Price from

DCF


26/28

May 201526

ource: Company Website, SEC Filings, Investor Presentation, Bloomberg, Capital IQ,

NYU Stern, IBBOTSON

Discounted Cash Flow Calculations

CC ANALYSISD in m ill ion s, except per share data)

Assumptions Bottom-Up Beta Calculation

Levered Total Mkt. Val. Debt/ Unlever

eer Group Tax Rate (for Bottom-Up Beta) 35.1% Ticker Name Beta Debt Equity Equity Beta(2

Risk-Free Rate of Return (Rf)(1) 7.98% GSAB10YR NasdaqGS:EEF NaEuronet Worldwide 1.819 427.5 3,183.3 13.4% 1.6

Market Return (Rm) 8.6% NYSE:HPY N Heartland Pay ment Sys tems 0.903 589.3 1,948.5 30.2% 0.7

ize Premium 2.7% NYSE:GPN N Global Payments 1.027 2,059.3 7,003.3 29.4% 0.8

asdaqGS:UEPS D/(D+P+E) 8.2% NasdaqGS:CAT NaCardtronics 0.516 674.6 1,715.9 39.3% 0.4

asdaqGS:UEPS D/E 8.9% SEHK:327 S PAX Global Technology 0.495 0.0 1,745.7 0.0% 0.4

asdaqGS:UEPS Cost of Debt (Rd) 7.4%

asdaqGS:UEPS Cost of Preferred (Rp) 0.0% Average 0.952 0.8

asdaqGS:UEPS Tax Rate 32.8%

Average Unlevered Beta for Comps 0.8

Risk free rate NasdaqGS:UEPS D/E 8.9

Choose NasdaqGS:UEPS Tax Rate 32.8

hen NasdaqGS:UEPS Levered Beta(3) 0.8

WACC WACC Sensitivity Analysis

Market Risk Premium (Rm - Rf) 0.6% NasdaqGS:UEPS Pre-Tax Cost of Debt

Multiplied by: NasdaqGS:UEPS Bottom-Up Beta 0.890 D/(D+P+E) # 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%

Adjusted Market Risk Premium 0.6% 0.00% # 11.2% # 11.2% # 11.2% # 11.2% # 11.2% # 11.2% # 11.2

Add: Risk-Free Rate of Return (Rf)(1) 8.0% 5.00% # 10.7% # 10.8% # 10.8% # 10.8% # 10.8% # 10.8% # 10.8

Add: Size Premium 2.7% 10.00% # 10.3% # 10.3% # 10.4% # 10.4% # 10.4% # 10.5% # 10.5

Cost of Equity 11.2% 15.00% # 9.9% # 9.9% # 10.0% # 10.0% # 10.1% # 10.1% # 10.2

Mul tiplied by : NasdaqGS:UEPS E /(D+P+E) 91.8% 20.00% # 9.4% # 9.5% # 9.6% # 9.6% # 9.7% # 9.8% # 9.8

Cost of Equity Portion 10.3% 25.00% # 9.0% # 9.1% # 9.1% # 9.2% # 9.3% # 9.4% # 9.5

30.00% # 8.5% # 8.6% # 8.7% # 8.8% # 8.9% # 9.0% # 9.1

asdaqGS:UEPS Cost of Debt (Rd) 7.4%

asdaqGS:UEPS Tax Rate 32.8%

After-Tax Cost of Debt 5.0% WACC Sensitivity Analysis

Multiplied by : Nas daqGS:UEPS D/(D+P+ E) 8.2%

Cost of Debt Portion 0.4% NasdaqGS:UEPS Cost of Equity

E/(D+P+E) # 8.50% 9.25% 10.00% 10.75% 11.50% 12.25% 13.00%NasdaqGS:UEPS Cost of Preferred (Rp) 0.0% 100.00% # 8.5% # 9.3% # 10.0% # 10.8% # 11.5% # 12.3% # 13.0

Multiplied by : Nas daqGS:UEPS P/(D+ P+ E) 0.0% 95.00% # 8.3% # 9.0% # 9.7% # 10.5% # 11.2% # 11.9% # 12.6

Cost of Preferred Portion 0.0% 90.00% # 8.1% # 8.8% # 9.5% # 10.2% # 10.8% # 11.5% # 12.2

85.00% # 8.0% # 8.6% # 9.2% # 9.9% # 10.5% # 11.2% # 11.8

WACC 10.7% 80.00% # 7.8% # 8.4% # 9.0% # 9.6% # 10.2% # 10.8% # 11.4

75.00% # 7.6% # 8.2% # 8.7% # 9.3% # 9.9% # 10.4% # 11.0

70.00% # 7.4% # 8.0% # 8.5% # 9.0% # 9.5% # 10.1% # 10.6

South Africa Government Debt - 10 Year

South Africa

NYU Stern

IBBOTSON

Size premium

and country

risk premiums


27/28

May 201527

Source: Capital IQ


SITIVITY ANALYSIS

in mil l io ns, except per share data)

Discounted Present Value of Terminal Value Present Value of Enterprise Value

asdaqGS:UEPS CF EBITDA Exit Multiple EBITDA Exit Multiple

WACC 2015-2019 4.0x 4.5x 5.0x 5.5x 6.0x 4.0x 4.5x 5.0x 5.5x 6.0

9.67% 192.9 915.7 1,030.2 1,144.6 1,259.1 1,373.6 1,108.6 1,223.0 1,337.5 1,452.0 1,56

10.17% 191.1 898.7 1,011.1 1,123.4 1,235.8 1,348.1 1,089.8 1,202.1 1,314.5 1,426.8 1,53

10.67% 189.3 + 882.1 992.4 1,102.7 1,213.0 1,323.2 = 1,071.4 1,181.7 1,292.0 1,402.2 1,51

11.17% 187.5 865.9 974.2 1,082.4 1,190.7 1,298.9 1,053.5 1,161.7 1,270.0 1,378.2 1,48

11.67% 185.8 850.1 956.4 1,062.6 1,168.9 1,275.1 1,035.9 1,142.2 1,248.4 1,354.7 1,46

Net Debt(1) Present Value of Equity Equity Value per Share

asdaqGS:UEPS at EBITDA Exit Multiple EBITDA Exit Multiple

WACC 03/31/15 4.0x 4.5x 5.0x 5.5x 6.0x 4.0x 4.5x 5.0x 5.5x 6.0

9.67% (50.6) 1,159.2 1,273.7 1,388.1 1,502.6 1,617.1 Divided 24.87 27.33 29.78 32.24 34

10.17% (50.6) 1,140.4 1,252.8 1,365.1 1,477.5 1,589.8 By 24.47 26.88 29.29 31.70 34

10.67% - (50.6) = 1,122.1 1,232.3 1,342.6 1,452.9 1,563.1 46.6 24.08 26.44 28.81 31.17 33

11.17% (50.6) 1,104.1 1,212.4 1,320.6 1,428.8 1,537.1 Shrs 23.69 26.01 28.33 30.66 32

11.67% (50.6) 1,086.6 1,192.8 1,299.1 1,405.3 1,511.6 = 23.31 25.59 27.87 30.15 32

Implied Perpetual Growth Rate of FCF Premium/(Discount) to Current Price per Share

asdaqGS:UEPS EBITDA Exit Multiple EBITDA Exit Multiple

WACC 4.0x 4.5x 5.0x 5.5x 6.0x 4.0x 4.5x 5.0x 5.5x 6.0

9.67% 4.6% 5.1% 5.5% 5.9% 6.2% 72.4% 89.4% 106.4% 123.4% 140.

10.17% 5.0% 5.6% 6.0% 6.4% 6.7% 69.6% 86.3% 103.0% 119.7% 136.

10.67% => 5.5% 6.1% 6.5% 6.9% 7.2% 66.8% 83.2% 99.6% 116.0% 132.

11.17% 6.0% 6.5% 7.0% 7.3% 7.7% 64.2% 80.3% 96.4% 112.5% 128.

11.67% 6.5% 7.0% 7.5% 7.8% 8.1% 61.6% 77.4% 93.2% 109.0% 124.


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RKING CAPITAL SCHEDULE

D in m ill ion s, except per share data)

Fiscal Year Ending June

2009 2010 2011 2012 2013 2014 | 2015E 2016E 2017E 2018E 2019E

l Revenue 246.8 280.4 343.4 390.3 452.1 581.7 | 824.4 1,105.9 1,363.7 1,581.6 1,799

t of Revenue 70.1 73.0 109.9 141.0 196.8 260.2 | 368.8 494.8 610.1 707.6 804

|ounts Receivable 49.5 52.4 95.3 119.7 81.5 159.4 | 225.9 303.1 373.7 433.5 493

Receivable Days 73.2 68.2 101.3 112.0 65.8 100.0 | 100.0 100.0 100.0 100.0 100

ntory 7.3 3.6 6.7 10.8 12.2 10.8 | 15.3 20.5 25.3 29.3 33

nventory Days 37.8 18.1 22.3 27.9 22.7 15.1 | 15.1 15.1 15.1 15.1 15

er Current Assets 12.8 100.4 202.8 414.8 789.8 780.0 | 1,105.6 1,483.1 1,828.8 2,121.0 2,412

Margin 5.2% 35.8% 59.0% 106.3% 174.7% 134.1% | 134.1% 134.1% 134.1% 134.1% 134.1

l Non-Cash Current Assets 69.5 156.3 304.8 545.3 883.5 950.2 | 1,346.8 1,806.7 2,227.8 2,583.8 2,939.

|

ounts Payable 5.5 3.6 11.4 13.2 26.6 17.1 | 24.2 32.5 40.1 46.5 52

Payable Days 28.5 18.0 37.7 34.1 49.3 24.0 | 24.0 24.0 24.0 24.0 24

rued Liabilities 8.3 11.0 13.0 16.0 14.7 15.2 | 21.5 28.8 35.6 41.3 46

Margin 3.4% 3.9% 3.8% 4.1% 3.2% 2.6% | 2.6% 2.6% 2.6% 2.6% 2.6

er Current Liabilities 64.0 127.0 251.6 439.3 773.9 760.7 | 1,078.2 1,446.4 1,783.6 2,068.6 2,353

Margin 25.9% 45.3% 73.3% 112.6% 171.2% 130.8% | 130.8% 130.8% 130.8% 130.8% 130.8

l Non-Debt Current Liabilties 77.8 141.6 276.0 468.5 815.1 793.0 | 1,124.0 1,507.8 1,859.3 2,156.3 2,452.

|

Working Capital / (Defecit) (8.3) 14.8 28.8 76.8 68.4 157.2 | 222.8 298.9 368.6 427.5 486.

|

rease) / Decrease in Working Capital (23.1) (14.1) (47.9) 8.3 (88.8) | (65.6) (76.1) (69.7) (58.9) (58.

rce: S&P Capital IQ

F Assumptions

ghted Average Cost of Capital 10.67%

minal EBITDA Multiple 5.0x

lied Perp. Growth Rate of Unlevered Free Cash Flow(2) 7.8%

Rate 32.8%

Considered current 3.3xmultiple with industrygroup of ~14.5x. Gapdecreases in FY2 withpeer group ~10.5x range.5.0x chosen as moderatemultiple expansion.

Documents

UEPS Long - Portrait - Jonathan Chang