Lesaka’s turnaround gathers momentum

The operating loss fell to R275 million from R611 million the previous year. The adjusted Ebitda (earnings before interest, tax, depreciation and amortisation) came in at R498 million from a loss of R268 million the prior year – a R766 million turnaround.

Over the past year, the standouts were the consumer division, which turned profitable from a loss of R329 million in 2022, and the merchant division, which romped home with Ebitda of R602 million in 2023.

One of the more encouraging signs of the turnaround is reflected in the positive net cash of R7 million, as opposed to a cash outflow of R565 million in 2022.

A report by Yiannis Zourmpanos of Yiazou Capital Research in August highlighted the advances made by Lesaka in reversing a long-running losing streak.

“Lesaka is transitioning from an unloved, mismanaged holding company into a fast-growing fintech focused on financial inclusion and serving micro, small, and medium enterprises (MSMEs) and underbanked consumers in South Africa. The company completed a transformational acquisition of the Connect Group in April 2022, now representing most of its value,” writes Zourmpanos.

The Connect Group acquisition has brought together assets like Kazang and CashConnect, enabling merchants to offer mobile top-ups, accept credit cards, process bill payments, and manage merchant acquiring as well as value-added services. Since the acquisition, Lesaka has been actively rightsizing its operations, refining its offerings, and striving to achieve cash flow breakeven, ultimately reducing its debt, adds Zourmpanos.

Lesaka sells digital financial services, primarily in SA, through its merchant and consumer divisions. This gives it a ‘dual-sided’ product ecosystem targeting both consumers and merchants and allows for cross-selling while simultaneously reducing customer acquisition costs.

Focus on growth

“The positive momentum is continuing into FY 2024 as we continue to focus on growth through the delivery of real financial inclusion for South Africa’s grant beneficiaries,” says Lincoln Mali, CEO of Southern Africa.

The consumer division’s EasyPay Everywhere products sell digital financial products to less well-off consumers, mainly government grant beneficiaries. It also offers life insurance and small unsecured loans to these customers.

Steven Heilbron, CEO of Connect Group and head of the merchant division, says organic growth of 47% in deployed devices from 51 000 to over 75 000 in FY 2023 was nothing short of remarkable.

“The merchant division continues to exceed expectations and, with our holistic merchant solutions helping small merchants grow and compete, we have delivered exceptional growth in a challenging economic environment.”

Group CEO Chris Meyer says exciting fintech opportunities await in the merchant space, where Lesaka is already a dominant player, “and we will build on our success both organically and through disciplined M&A activity”.

“We are fortunate to have the existing scale and profitability, as well [as the] support of our shareholders, to pursue our vision of building the leading South African fintech platform.”

Zourmpanos sees plenty of growth opportunities for Lesaka in addressing the one-third of the SA population without a bank account and the roughly three-quarters who do not have a credit or debit card. Internet usage is high in SA at 94% of the population, which is a strong foundation for fintech companies to offer digital services and reach a large customer base.

View or download a PDF of the above here.

Brought to you by Lesaka Technologies.

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