Research Articles

Net1 UEPS Technologies (UEPS) Rises Over 30 Percent Rewarding Undervaluation

Chuck Carnevale - Wednesday, January 18, 2012

One of today’s biggest gainers is a small-cap, NASDAQ traded, application software company, Net1 UEPS Technologies (UEPS), and at one time was up over 30% in just this one trading day. As of the time of this writing, Net1 UEPS Technologies is rising approximately 28% from a close of $6.72 on Tuesday, January 18, 2012 to its current price of $8.60.  The magnitude of this one-day performance begs questions. First of all, is it possible that a business can change in value by over 25% in one single business day? Number two, if the answer is yes, then what could cause such a startling advance?

 Moreover, questions about the rational nature of the market also arise. Was the market correctly pricing this company yesterday, or is today’s price correct, or is the market continuing to improperly value the business behind the stock? When you think about a change of this magnitude occurring so quickly, a logical explanation seems difficult to imagine. Let’s take a look at this company to see if there are any sensible answers to any of the questions posed.

Net1 UEPS Technologies (UEPS)

Net1 UEPS Technologies (UEPS) - bills itself as the leading provider of secure and affordable transaction channels between formal business and un-banked and under-banked individuals.  Their primary business is supplying chip card technologies and systems that provide alternative payment solutions for populations in developing economies.  Typically these populations, estimated at 4 billion people, have limited or even no access to traditional banking facilities.  This company’s signature product is its Universal Electronic Payment System (U.E.P.S.).

The following F.A.S.T. Graphs analyzes Net1 UEPS Technologies (UEPS) since its public offering. Net1 when public on April 4, 1998, and like many IPOs, its stock price ran from approximately $40 a share to just under $50 a share between April and June of 1998 (see red circle).  At this time, the company had no earnings, and therefore, was trading mostly on promise.  Over the next six years or so, Net1’s stock price, although volatile, essentially fell to single digits because there were no earnings to support valuation.

Then, after reporting their first earnings per share of $.36, followed by earnings increasing 67% to $.60 per share (see yellow shading at bottom of graph), their stock price skyrocketed from approximately $6.90 a share to over $64 a share by May of 2004.  However, once the reality of the company’s earnings potential came into focus, the company’s stock price plummeted back to its earnings justified single-digit levels (see red arrow).  From this point, stock price more or less moved with earnings, although at a high valuation, until May of 2008. Then, the recession of 2008 brought an earnings drop of approximately 18% from a $1.52 to $1.25.  This caused a precipitous drop in stock price once again into single digits. Then after the stock price recovered to almost earnings justified valuation, it has drifted down ever since from the low $20s to under $7 per share. Earnings growth has been semi-cyclical, rising then falling, then generally drifting sideways.

Sum all this price volatility up, and long-term shareholders in this interesting software application small-cap company would have seen their capital eroded to the tune of a -83%.  This represents a compounded annual loss of -12.3% per annum since the company went public in 1998.

What Has Stimulated Today’s Almost 30% Rise?

Net1 UEPS Technologies (UEPS) - announced today that its wholly-owned subsidiary, Cash Paymaster Services, received a letter of award from the South African Social Security Agency (SASSA) for the provision of payment services for social grants in all of South Africa’s nine provinces for a period of five years.  According to Net1 UEPS Technologies CFO, Herman Kotze: “given the magnitude of the SASSA tender award, we expect a significant impact on the group’s financial affairs when the contract period commences as result of new volume and pricing, additional costs, capital expenditure and additional contractual obligations.”

Let’s first look at what Net1 UEPS Technologies’ (UEPS) historical earnings and price graph looked like prior to the above announcement, followed by what the estimated earnings and return calculator looked like based on consensus analyst estimates.  After rising to $1.55 per share for this fiscal year, earnings were expected to drop to approximately $1.10 per share next fiscal year. Then, after falling to a $1.10 per share, earnings were expected to advance approximately 10% per annum over the next five years (note that there is only one analyst reporting to Capital IQ). Nevertheless, Net1 UEPS Technologies’ (UEPS) shares appear to be significantly undervalued with a PE ratio of only five.

A Hypothetical Earnings Acceleration Due To This Win.

Management has stated that they will give further guidance on how much impact the five-year SASSA contract will make on their business during their February 10, 2012 conference call.  However, we offer the following hypothetical analysis to justify today’s 30% advance.  Assuming that the one analyst reporting to Capital IQ was reasonably correct with his expectation of 10% earnings growth prior to the contract win, we present the following hypothetical possibility:  We will assume that future earnings growth accelerates from the 10% expectation to 12% per annum.  This number is consistent with the 12.6% average earnings growth rate the company has achieved since calendar year 2005.

We have overwritten Net1 UEPS Technologies’  (UEPS) future earnings graphs as follows, and we have added a green dot that represents today’s stock price of approximately $8.80.  The yellow line indicates the cost basis of today’s purchase, and together the dot and the yellow line show that the company remains significantly undervalued even after today’s 30% rise. Notice that even though the price rise exceeded 30%, it is hardly noticeable on the graph.

 

The following estimated earnings and return calculator illustrates the potential that this small-cap technology stock offers given the assumptions of an accelerated 12% growth rate as discussed above. The 39.2% five year estimated annual total return is calculated based on an accelerated 12% growth rate of earnings and the PE ratio expanding to a more rational 15.  Both of those currents are reasonable and indicative of how undervalued the company is.  In other words, it’s the undervaluation that can be attributed to such a high long-term potential rate of return.

 

Summary and Conclusions

This article was motivated by the over 30% rise in the stock price of Net1 UEPS Technologies (UEPS), small-cap NASDAQ technology stock in one trading day. We believe that the primary reason this is happening is because the market was grossly undervaluing this company shares.  Consequently, a piece of good news stimulated an incredible 30% advance in one single trading day.  Common sense would tell us that the intrinsic value of a business, even a small business like Net1 UEPS Technologies (UEPS), could not logically change by a magnitude of over 30% that quickly.  Unless of course, it was through a merger, that increased the size and the value of the business by that much.  The win of a contract, even a big contract like they announced today, would be unlikely to have such an impact.

On the other hand, when reviewing the company’s stock price prior to the announcement, it was obvious that this profitable small business was being significantly undervalued by Mr. Market. The fundamentals underpinning this company, and therefore its stock price, were far better than what the market was, in our opinion at least, applying. The point we are attempting to illustrate with this example is the undeniable reality that Mr. Market can and often does completely miss the mark when pricing businesses.  It is our contention that when the market does this through undervaluation, it simply means that the business has temporarily become illiquid.  In other words, it cannot be sold for what we refer to as True Worth™ and what others call intrinsic or fair value.

 Of course, when the market significantly overprices a stock like it did Netflix (NFLX) in the summer of 2011, we would argue that the stock becomes highly liquid.  In other words, it is begging to be sold. But, when a company is being ridiculously undervalued based solely on negative psychological sentiment, we believe the stock is begging to be bought. The fundamentals of Net1 UEPS Technologies (UEPS) represent a significant bargain based on a true and realistic value of its earnings and cash flows.  This was true prior to today’s announcement, and therefore, should be even truer now.

The last two graphs in this article are hypothetical in nature for 2012 and beyond, and therefore, should not be relied upon as accurate.  Moreover, these graphs were drawn utilizing some basic assumptions, that although we felt were logical, are as of yet unsubstantiated. Management has indicated that they will offer updated guidance on February 10, 2012 during their regularly scheduled earnings conference call. Nevertheless, we believe that based on the expectations for this company prior to this great new contract, that their shares were being significantly undervalued.  However, each investor is advised to conduct his or her own due diligence prior to investing.

Disclosure:  No positions at the time of writing.

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Comments
Anonymous commented on 26-Sep-2012 03:39 AM
cheap replica bag and get big save JrjHOGlYhttp://www.replica-designer-bags.com/
Anonymous commented on 29-Sep-2012 01:02 PM
must look at this louis vuitton outlet at my estore
Anonymous commented on 12-Oct-2012 04:35 PM
uggs boots clearance online NqBmvupthttp://www.uggboots-clearance.org/
Anonymous commented on 13-Oct-2012 06:09 AM
uggs online outlet online shopping QgqkLVVshttp://www.ugg-boots-online.us/
Anonymous commented on 18-Oct-2012 06:53 AM
viagra achat france
acheter viagra en ligne
viagra generique en ligne
viagra pas cher en france
Anonymous commented on 18-Oct-2012 10:41 AM
I as well as my pals have been looking through the great tips and tricks found on your website and all of the sudden I had an awful suspicion I had not expressed respect to the blog owner for those tips. My young boys were glad to see all of them and now have in fact been tapping into them. Appreciation for turning out to be well kind and for selecting variety of brilliant subject matter most people are really desperate to be informed on. My sincere regret for not expressing appreciation to you sooner.
australian online casino pokieonline pokie
Anonymous commented on 18-Oct-2012 01:36 PM
But a smiling visitor here to share the love (:, btw great design. "Competition is a painful thing, but it produces great results." by Jerry Flint.sump pump
Anonymous commented on 19-Oct-2012 02:14 AM
The must have summer
Canada Goose JacketsOutlet styles include the timeless denim and leather as well as cropped and trench-style style items.
Canada Goose Parkas Outletare great in winter for warmth; they can be great on different styles and can go with casual or formal looks.The
Canada Goose OutletExpedition Parka provides heavy-duty warmth thanks to its high-quality duck down insulation.It is not a novelty that military style tops the leading fashion trends
Canada Goose Jackets Outletdue to its refined and classic influences and qualities.
Anonymous commented on 19-Oct-2012 03:30 AM
Designs of this season give you the unlimited cool feelings in this cool summer. The new designs of Coach products in the Coach Outlet enrich our daily life.
Anonymous commented on 19-Oct-2012 08:57 AM
I understand that in Egyptian hieroglyphics Louis Vuitton Official Website the course of development from ideograms to phonetic writing can be studied.Regarding the craft,the goods fromCoach Outlet Store is tight,the seams are aligned and details emulate the designer's actual handbags.west plus southwest around the commune,Louis Vuitton Online Store is usually a pure gardening plus Commune.Coach Outlet Online The staff was adamant about the policy even though they acknowledged there was nothing stopping us from coming in the next day and purchasing from another shop girl.Louis Vuitton Outlet iphone cases I was excited to see this coat online since I love Louis Vuitton, and I needed a new coat like this.This Louis Vuitton Canada for sale belongs to the sounding just what are termed asLouis Vuitton vintage best sellers.
Anonymous commented on 19-Oct-2012 03:25 PM
hello!,I like your writing so much! proportion we be in contact extra approximately your post on AOL? I need an expert in this space to solve my problem. Maybe that is you! Looking ahead to look you.WebsiteClick Here For More Infouseful linkClick Here To Investigatedig this
Anonymous commented on 21-Oct-2012 04:21 PM
Thanks, I have just been looking for info about this subject for ages and yours is the best I have came upon so far. But, what concerning the bottom line? Are you positive concerning the source?http://www.halogenoven101.co.uk
Anonymous commented on 22-Oct-2012 01:52 PM
Normally I do not learn article on blogs, but I would like to say that this write-up very forced me to check out and do it! Your writing taste has been surprised me. Thank you, very great article.kasino
Anonymous commented on 22-Oct-2012 05:04 PM
Somebody necessarily assist to make seriously posts I would state. This is the first time I frequented your website page and thus far? I amazed with the research you made to create this particular put up incredible. Wonderful activity!Dehumidifiers reviews | best coffee grinder |generator reviews |best Humidifiers |best leaf blower | paint sprayer reviews

Post a Comment




Captcha Image


Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”


Recent Posts


Tags

Macro view BWP MCK long-term returns CSX POWR AMBN utility stocks JNJ O PNR EnergySector banks AXP TWGP MPW TNGO Market Outlook CR value-oriented KMT FRED best-of-breed PE Ratio investing for income CATY MTZ TSCO COL SHOO TOT WU DLPH TGH treasury ODFL food service HCP ED AAN CPB CXRX SYK MYL VMI BPL SNI HII JOY MATW NC ENDP ITW, ED:SCG RatofReturn BWLD dividend WASH BAP DividendChampions UTX GILD ATW SHR ITW dividends,earnings growth IR total return market timing Industrial CACC KSS intrinsic value Telecommunications CASY EMR UL CTSH AGN due diligence C TSM WMT SAVE JKHY BKH EV SBRA MO THRM K SYY LL Share Buybacks CLX REXX fair valuation BLK DPS CLX,EMR TEG: WEC: TEVA OHI GPI ACQ technology GD STE short ideas RIMM BHP dividend income BCOR TE CINF TRV suvivorship FL UNP stockResearchTool BRLI SFG FBHS ORI stock research ATHM AMCX NOC FISV NSRGY POR DVA NA dividend-growth BMRC KCAP SWFT WST NLY VTR URI WHR AET DOM CSL DGAS FairValuation BBBY ETR BMTC diversified machinery MCY FTR NSC ETN AOS DRC OUTR ECHO ADM SU JAZZ ACM FTI,HTZ EWBC FDX Ratio BF.B MA fastgraphs EMC FLIC JCI BHB growth MGEE TGT Aristocrats NROM ACR InformationTech investment RJF SYNA CanadianBanks OKS COST investing for total return KFT SCL COP AFL,CVX,ED,JNJ,MCD,PG,SWK,T,WMT,TGT,ABM,AFL,BEN,BMS,CB,CBSH,CTBI ITC cashflow APH DMRC WWW WEC economy act CAH hyper growth stocks InterestRates CVX,SWK,MCD,TGT,PG,WMT,JNJ,MDT,AFT,T,ED DLR blue-chip AM XOM ULTA OGE VRX WBA V SUBX BLL BDX SILVER EMR, MMM GPCM PRXL WVR GME CBRL SIVB HIBB long AGLP SWK KR consumer INWK AMZN PSX MAIN RRD EAT HD RBC HSY MHS OXY long-term investing ABM VRTU dividend growth sell AMGN JWN MAT PPL market currents utility FAST EBAY DKS IPAR LMT OII RS SHPG OZRK DTE GPC macro LKQ DNB HSNI ARLP marketvaluation AVD cash flows free cash flow GOOGL EPHC FAF DIS BA MGRC ACN ONE SAM SIG MMM ENSG PortfolioDesign value trap PKG EXC BAX GLT SBR LQDT stocks POM healthcare mid-sized FC KO,CLX,CELG,JCP,GT,MSI,PEP,ED MAN DTV PowerOfCompounding stock MCD retirement DHR MDP SLW JPM POT Fundamentals BOFI GT WLP suvivorship basis ADP CB THFF BCE PCP COO fast-growing DORM fair value UTHR JRN regional banks LTM BH UNH GES INFY KALU IR, VAL CTAS CVX PM M PEG DRI DividendAristocrats CHE HNZ DFS investing HCA CTL dividend-paying TEF MSCC QCOR PPG HOG THO SWKS LOW MELI NSR HBI MIDD HRS QCOM UNM WGL HGT CRLI CERN THC PRGO SJM ACE Dividend Ideas SYT MKC AFSI investing for income,growth and income fundamental stock research tool Stock Research Analysis MUR long-term XRX ANDE Aristocrat Materials OKE WFC APD BBY GWW CMI HSC US Economy AAPL SPLS Champions MNTX growth stocks ZBRA capital appreciation highqualityR CTRX BIDU PEP VZ RSG ACOM BIIB ABC JSFT CSCO IDA DAN BG SLGN RSO Consumer discretionary COH DR intrinsicvalue long-term growth FCFS MNST EE TNC P PBI BOBE AAP TIF Contenders IBM HON FAST Graphs GEOS dividendGrowth intrinsic value,stocks,earnings,fundamentals,stock research tool,due diligence FB 3NSRGY machinery TXT T RY STMP DOV PCLN TAC D AZO Overvalued KMB BANF ICLR FOSL CLR Utilities HRL WMT,ROST,GIS,GE,JNJ,KO DD beta AIRM PNW portfolio dividend paying ACI GOOG NPM RAI true worth SCHW Yield TGI DTEGY UN SON CLF VCO high-yield RRC JWML.Y FDO UHS DividendIncome JCOM LO PB Dividend Champions ANTM stock research tool MCHP HCN SNH FairlyValued VVC NEE CVS BMO LINE BR SPY ConsumerDiscretionary ETP ALTE INT BRS dividend growth investing SRCE CTCM Challengers NTES BEAV earnings growth AVP HCI ADT BAC GMCR GPS AMP BigFive,Canadian LXU CBU TWX GIS X CCK CFR CAT WRLD PII LEN SXL RSG,RTN R MSA PAG FLO BMS AEG CBI HAS MSFT DRIP BNS. F HPQ TU RTN CPN ORCL WY ESI AIG ROSE WSM blue chip TMP CAM INTC PG XEL CL LH PNRA SCG ALB GOLD ZUMZ dividend paying stocks value investing CTBI Valuation AFL PFE AB ABT RCII ESRX FUL LLL AEP Bond,TGT,UTX BCR CE MRK SEIC CGY above-average RDS.A AMT LLY HP PCL GNTX OHI,EPR,WPG,JLL CTG rate of return VFC biotech AKRX Utilities Sector MTW MNR long ideas DDS FF DELL SBUX REITs RMD biotechnology SNCR GE EK SHW PDFS AA cyclical AMG cash flow ARRS TIS NKE DOW dividends NFLX HCBK PE stock analysis CKSW KMP AMAG FRAN PFG earnings KO CM INGR CHS BEN MDT APEI CIO PRAA CAPE CELG dividendpaying NOG ECL SoundValuation WAG ASNA EXLS OSIS NVS GAS value HighQuality HE BOKF GrowthOriented DollarCostAverging RKT UEPS market LZB MHP FinancialSector WFM CNSL IBN PNM CACI DECK ROST CHD MGA DGX DE interest rates Buffett WIN TROW AFAM ABBV SO AFG FOMC MNK CRI TUP BNS CNC TICC AZZ mid-cap

Archive

Testimonials


“I appreciate your work, Chuck. As a subscriber to FAST Graphs™, I use the tool to decide on whether to purchase additional shares of what I currently hold or to add a new holding. Your articles help me make full use of the tool and give other readers valuable information, if they take the time to learn. One of the biggest enhancements that I use is the FFO data added for MLPs and REITs.”


“When FAST Graphs™ were unavailable because of Hurricane Sandy, I realized how much I need them in order to make investment decisions.

(Wish I could be) Long FAST Graphs!!!”


“One more vote for the value of FAST Graphs™; just started a subscription to Chuck's great service (premium), and am having a ball analyzing so many stocks quickly.”


“I feel very ill-equipped to make investment decisions without Fast Graphs. :-)”


“Yesterday, I signed up for your F.A.S.T. Graphs™. It's a really amazing, valuable tool for checking over/undervaluation of stocks. Wish I had it years and years ago!!”


“Love the F.A.S.T. Graphs™: One glance and you know a whole lot.”


“About Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


"Chuck -- Your proprietary F.A.S.T. Graphs™ are a VERY impressive tool!"


“If there were an Investor Hall of Fame for people who have helped others with their investing, and sharing valuable information, you and your F.A.S.T. Graphs™ would get one of my selections.”


“I love Chuck's F.A.S.T. Graphs™! Well worth the price of admission for what he gives you.”


"Chuck - Thank you for your well thought out articles. I tend to be a visual type of person so I really appreciate the F.A.S.T. Graphs™ approach."


"Great article, as always! I always look forward to your articles, and am especially eagerly awaiting your next in this series. I find the F.A.S.T. Graphs™ extremely helpful."


“Your F.A.S.T. Graphs™ put all of this in a single artful picture and the accompanying spreadsheets hammer home the point.”


“I use the F.A.S.T. Graphs™ method to evaluate all of my ideas. I recommend it for individual investors, since it helps them focus on data and get past the many emotional arguments.”


“I recently subscribed to the F.A.S.T. Graphs™, and these articles are helping me learn how to better use them. They really do give you a good quick look at the valuations picture. A much needed tool!”


“I also always appreciate the clear-cut information provided through your F.A.S.T. Graphs™ and articles.”


“Thanks, Chuck, for your F.A.S.T. Graphs™. Each of these graphs is worth 1,000 words in describing a company's growth, consistency and valuation. Thanks for sharing your graphs.”


“Thanks, Chuck. Love the F.A.S.T. Graphs™! It makes investing so much more clear.”


“Chuck's F.A.S.T. Graphs™: They are invaluable to me in making decisions about the stocks I own (in addition to what you are saying about doing other research) and the ones I hope to own in the future.”


”I am amazed at the usefulness of your F.A.S.T. Graphs™ and I plan on using them for a long time to come.”


“Chuck's F.A.S.T. Graphs™ will give you a tool to find those well chosen stocks...”


“Thanks for the F.A.S.T. Graphs™, Chuck. They are the best tool I've used.”