Lesaka grows revenue 11% & turns loss into profit

Fintech group Lesaka Technologies reported an 11% jump in revenue to R10.6 billion for the financial year to June 2024 and a R343 million turnaround in group income, reflecting a positive operating income of R67 million.

After accounting for interest and other expenses, the net loss for the year was reduced by nearly half to R326 million from R629 million the prior year. Adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) improved 55% to R691 million (2023: 445 million).

The group offers a range of finance-related solutions, from transactional accounts to lending, insurance, cash management solutions, card acceptance, supplier payments, software services and bill payments.

It serves several markets not typically covered by traditional banks, such as micro-merchants and others operating in the informal sector, offering them digital payments, lending and other products. Lesaka faces competition in several markets, from lending to card issuance, bill payments, and transaction accounts. Still, it retains an edge in offering customers end-to-end solutions, particularly in the lower-income and informal sector markets.

There are reckoned to be about 2.7 million merchants in SA, of which nearly 900 000 are potential clients for Lesaka. Its merchant division currently has 96 600 customers in southern Africa, 87 000 of them in SA.

This number will grow with the acquisition of Adumo in May 2024, an independent payments and commerce enablement platform serving about 23 000 active merchants with operations in SA, Namibia, Botswana and Kenya. Its total consumer customer base numbers more than 245 000 with annual throughput of R24 billion a year. The deal will likely be finalised in October 2024. Adumo generates most of its revenues through transactional fees.

The R1.6 billion Adumo deal pushes Lesaka’s total consumer customer base to 1.7 million, with 119 000 merchants and more than R250 billion in annual throughput.

The merchant division, the largest part of the business, increased revenue 12% to R9.3 billion and Ebitda by 4% to R624 million. Revenue for the consumer division was up 15% to R1.3 billion and Ebitda improved 361% to R274 million.

The enterprise division focuses on large corporates, mobile network operators, banks, governments and municipalities. It has over 750 customers and generates more than R70 billion of throughput annually.

In February, Lesaka acquired 100% of Touchsides, a data analytics and merchant services company, from Heineken International. This is expected to increase the company’s footprint in SA’s tavern industry in the informal sector.

“We are entering an exciting period of growth for Lesaka, integrating the Adumo and Touchsides acquisitions with our existing fintech solutions as we strive to empower southern African consumers and merchants to fulfil their potential,” says CEO for southern Africa, Lincoln Mali.

On a forward-looking basis, the group expects revenue of R10 billion to R11 billion in the 2025 financial year, and adjusted Ebitda of R900 million to R1 billion, with the Adumo acquisition expected to be completed in October 2024. Excluding the impact of the Adumo acquisition, this implies an Ebitda growth rate of more than 30%.

Net debt as a ratio of Ebitda reduced to 2.5 times from 4.5 times.

The group is focusing much of its future plans on the potential for growth in the African market. According to the Boston Consulting Group, the fintech revenue pool across the continent is expected to grow 13 times between 2021 and 2030, making Africa the fastest-growing fintech market globally.

Lesaka remains in growth mode and will likely stay this way for the foreseeable future. It’s encouraging to note that its cost of sales was contained to around consumer inflation levels while admin expenses were reduced. The net interest charge remains high following the acquisition of fintech company Connect in 2022, though management seems set on managing this while pursuing its growth plans and improving margins.