Intrinsic value of Net 1 U.E.P.S. Technologies - UEPS

Previous Close

$9.41

  Intrinsic Value

$30.29

stock screener

  Rating & Target

str. buy

+222%

  Value-price divergence*

-6%

Previous close

$9.41

 
Intrinsic value

$30.29

 
Up/down potential

+222%

 
Rating

str. buy

 
Value-price divergence*

-6%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of UEPS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -5.59
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  591
  603
  617
  633
  650
  670
  692
  715
  741
  768
  798
  829
  863
  899
  937
  977
  1,020
  1,065
  1,113
  1,164
  1,217
  1,274
  1,333
  1,396
  1,462
  1,532
  1,605
  1,682
  1,763
  1,849
  1,939
Variable operating expenses, $m
 
  362
  370
  379
  389
  400
  413
  426
  441
  456
  473
  473
  492
  513
  535
  558
  582
  608
  635
  664
  695
  727
  761
  797
  834
  874
  916
  960
  1,006
  1,055
  1,106
Fixed operating expenses, $m
 
  127
  130
  134
  137
  140
  144
  147
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
  193
  198
  203
  208
  213
  219
  224
  230
  236
  242
  248
  254
  260
Total operating expenses, $m
  476
  489
  500
  513
  526
  540
  557
  573
  592
  611
  632
  636
  659
  684
  710
  738
  766
  797
  828
  862
  898
  935
  974
  1,016
  1,058
  1,104
  1,152
  1,202
  1,254
  1,309
  1,366
Operating income, $m
  114
  114
  117
  120
  124
  129
  135
  142
  149
  157
  166
  193
  204
  215
  227
  240
  254
  269
  285
  301
  319
  339
  359
  381
  403
  428
  453
  481
  509
  540
  572
EBITDA, $m
  154
  147
  150
  154
  159
  164
  170
  177
  185
  194
  204
  214
  225
  237
  250
  264
  279
  295
  312
  330
  350
  370
  392
  415
  440
  466
  493
  523
  553
  586
  620
Interest expense (income), $m
  3
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  21
  23
  25
  28
  31
  34
  37
  40
  43
  47
  50
  54
  59
  63
  68
  72
  78
Earnings before tax, $m
  126
  111
  114
  116
  120
  124
  128
  133
  139
  146
  153
  179
  187
  196
  206
  217
  228
  241
  254
  268
  283
  299
  316
  334
  353
  373
  395
  418
  442
  467
  495
Tax expense, $m
  42
  30
  31
  31
  32
  33
  35
  36
  38
  39
  41
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  81
  85
  90
  95
  101
  107
  113
  119
  126
  134
Net income, $m
  82
  81
  83
  85
  87
  90
  94
  97
  102
  106
  112
  130
  137
  143
  151
  158
  167
  176
  185
  196
  206
  218
  230
  244
  258
  272
  288
  305
  323
  341
  361

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  224
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,264
  1,061
  1,086
  1,114
  1,145
  1,180
  1,218
  1,259
  1,304
  1,352
  1,404
  1,460
  1,519
  1,582
  1,649
  1,720
  1,796
  1,876
  1,960
  2,049
  2,143
  2,243
  2,347
  2,458
  2,574
  2,697
  2,826
  2,962
  3,105
  3,255
  3,413
Adjusted assets (=assets-cash), $m
  1,040
  1,061
  1,086
  1,114
  1,145
  1,180
  1,218
  1,259
  1,304
  1,352
  1,404
  1,460
  1,519
  1,582
  1,649
  1,720
  1,796
  1,876
  1,960
  2,049
  2,143
  2,243
  2,347
  2,458
  2,574
  2,697
  2,826
  2,962
  3,105
  3,255
  3,413
Revenue / Adjusted assets
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
  0.568
Average production assets, $m
  102
  104
  106
  109
  112
  115
  119
  123
  127
  132
  137
  143
  148
  155
  161
  168
  175
  183
  191
  200
  209
  219
  229
  240
  251
  263
  276
  289
  303
  318
  333
Working capital, $m
  322
  109
  112
  114
  118
  121
  125
  129
  134
  139
  144
  150
  156
  163
  170
  177
  185
  193
  202
  211
  220
  231
  241
  253
  265
  277
  291
  304
  319
  335
  351
Total debt, $m
  52
  57
  72
  89
  109
  131
  155
  181
  209
  240
  272
  307
  345
  384
  426
  471
  519
  569
  622
  678
  737
  800
  866
  935
  1,008
  1,085
  1,166
  1,252
  1,342
  1,436
  1,536
Total liabilities, $m
  663
  668
  683
  700
  720
  742
  766
  792
  820
  851
  883
  918
  956
  995
  1,037
  1,082
  1,130
  1,180
  1,233
  1,289
  1,348
  1,411
  1,477
  1,546
  1,619
  1,696
  1,777
  1,863
  1,953
  2,047
  2,147
Total equity, $m
  601
  394
  403
  413
  425
  438
  452
  467
  484
  502
  521
  542
  564
  587
  612
  638
  666
  696
  727
  760
  795
  832
  871
  912
  955
  1,001
  1,048
  1,099
  1,152
  1,208
  1,266
Total liabilities and equity, $m
  1,264
  1,062
  1,086
  1,113
  1,145
  1,180
  1,218
  1,259
  1,304
  1,353
  1,404
  1,460
  1,520
  1,582
  1,649
  1,720
  1,796
  1,876
  1,960
  2,049
  2,143
  2,243
  2,348
  2,458
  2,574
  2,697
  2,825
  2,962
  3,105
  3,255
  3,413
Debt-to-equity ratio
  0.087
  0.140
  0.180
  0.220
  0.260
  0.300
  0.340
  0.390
  0.430
  0.480
  0.520
  0.570
  0.610
  0.650
  0.700
  0.740
  0.780
  0.820
  0.860
  0.890
  0.930
  0.960
  0.990
  1.030
  1.060
  1.080
  1.110
  1.140
  1.160
  1.190
  1.210
Adjusted equity ratio
  0.363
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371
  0.371

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  82
  81
  83
  85
  87
  90
  94
  97
  102
  106
  112
  130
  137
  143
  151
  158
  167
  176
  185
  196
  206
  218
  230
  244
  258
  272
  288
  305
  323
  341
  361
Depreciation, amort., depletion, $m
  40
  33
  33
  34
  34
  35
  35
  36
  36
  37
  38
  21
  22
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
Funds from operations, $m
  108
  114
  116
  119
  121
  125
  129
  133
  138
  143
  149
  151
  158
  166
  174
  183
  192
  202
  213
  225
  237
  250
  264
  278
  294
  311
  328
  347
  367
  387
  409
Change in working capital, $m
  -9
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Cash from operations, $m
  117
  112
  114
  116
  118
  121
  125
  129
  133
  138
  144
  145
  152
  159
  167
  175
  184
  194
  204
  215
  227
  240
  253
  267
  282
  298
  315
  333
  352
  372
  393
Maintenance CAPEX, $m
  0
  -15
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
New CAPEX, $m
  -36
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
Cash from investing activities, $m
  -6
  -17
  -17
  -18
  -19
  -19
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -61
Free cash flow, $m
  111
  95
  96
  98
  99
  102
  104
  108
  111
  115
  120
  120
  126
  132
  138
  145
  153
  161
  170
  179
  189
  200
  211
  223
  236
  250
  264
  280
  296
  313
  332
Issuance/(repayment) of debt, $m
  -7
  14
  15
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  95
  99
Issuance/(repurchase) of shares, $m
  85
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  14
  14
  15
  18
  20
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  95
  99
Total cash flow (excl. dividends), $m
  106
  109
  112
  115
  119
  123
  128
  134
  139
  146
  152
  155
  163
  171
  180
  190
  200
  211
  223
  235
  248
  262
  277
  293
  309
  327
  345
  365
  386
  408
  431
Retained Cash Flow (-), $m
  -123
  -8
  -9
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
Prev. year cash balance distribution, $m
 
  215
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  316
  103
  105
  107
  111
  114
  118
  123
  128
  133
  134
  141
  148
  155
  163
  172
  181
  191
  202
  213
  225
  238
  252
  266
  281
  297
  315
  333
  352
  372
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  303
  94
  91
  88
  86
  83
  80
  77
  73
  70
  64
  60
  56
  52
  48
  44
  39
  35
  31
  27
  23
  20
  16
  14
  11
  9
  7
  5
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Net 1 UEPS Technologies, Inc. is a provider of payment solutions, transaction processing services and financial technology across multiple industries. The Company develops and markets a transaction processing solution that encompasses its smart card-based alternative payment system for the unbanked and under-banked populations of developing economies and for mobile transaction channels. The Company operates through three segments: South African transaction processing, International transaction processing, and Financial inclusion and applied technologies. The Company also provides secure transaction technology solutions and services, by offering transaction processing, financial and clinical risk management solutions to various industries. It offers secure online transaction processing, cryptography, mobile telephony, integrated circuit card (chip/smart card) technologies, and the design and provision of financial and value-added services to its cardholder base.

FINANCIAL RATIOS  of  Net 1 U.E.P.S. Technologies (UEPS)

Valuation Ratios
P/E Ratio 6.3
Price to Sales 0.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 4.4
Price to Free Cash Flow 6.4
Growth Rates
Sales Growth Rate -5.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 9.4%
Financial Strength
Quick Ratio 25
Current Ratio 0.9
LT Debt to Equity 7.2%
Total Debt to Equity 8.7%
Interest Coverage 43
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 13.8%
Ret/ On T. Cap. - 3 Yr. Avg. 15.6%
Return On Equity 15.2%
Return On Equity - 3 Yr. Avg. 17.9%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 50.9%
Gross Margin - 3 Yr. Avg. 52.8%
EBITDA Margin 28.6%
EBITDA Margin - 3 Yr. Avg. 28.3%
Operating Margin 19.5%
Oper. Margin - 3 Yr. Avg. 19.2%
Pre-Tax Margin 21.3%
Pre-Tax Margin - 3 Yr. Avg. 20.8%
Net Profit Margin 13.9%
Net Profit Margin - 3 Yr. Avg. 13.7%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.5%
Payout Ratio 0%

UEPS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UEPS stock intrinsic value calculation we used $591 million for the last fiscal year's total revenue generated by Net 1 U.E.P.S. Technologies. The default revenue input number comes from 2016 income statement of Net 1 U.E.P.S. Technologies. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our UEPS stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for UEPS is calculated based on our internal credit rating of Net 1 U.E.P.S. Technologies, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Net 1 U.E.P.S. Technologies.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of UEPS stock the variable cost ratio is equal to 60.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $124 million in the base year in the intrinsic value calculation for UEPS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Net 1 U.E.P.S. Technologies.

Corporate tax rate of 27% is the nominal tax rate for Net 1 U.E.P.S. Technologies. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the UEPS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for UEPS are equal to 17.2%.

Life of production assets of 6.9 years is the average useful life of capital assets used in Net 1 U.E.P.S. Technologies operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for UEPS is equal to 18.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $601 million for Net 1 U.E.P.S. Technologies - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 53.449 million for Net 1 U.E.P.S. Technologies is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Net 1 U.E.P.S. Technologies at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ New Strong Sell Stocks for October 6th   [Oct-06-17 09:17AM  Zacks]
▶ Net 1 UEPS posts 4Q profit   [Aug-24-17 09:37PM  Associated Press]
▶ Net1 Concludes Investments in Cell C and DNI   [Aug-07-17 07:45AM  Marketwired]
▶ Top Ranked Value Stocks to Buy for June 20th   [Jun-20-17 10:37AM  Zacks]
▶ Net1 appoints Alfred Mockett to its board of directors   [May-31-17 04:05PM  Marketwired]
▶ Bargain Tech Stock Out Of Africa   [May-23-17 06:30AM  Forbes]
▶ National Prosecuting Authority closes case against Net1   [May-18-17 09:30AM  Marketwired]
▶ Net 1 UEPS posts 3Q profit   [May-04-17 06:53PM  Associated Press]
▶ Net1 Sets the Record Straight With External Verification   [Apr-21-17 11:30AM  Marketwired]
▶ Top Ranked Value Stocks to Buy for March 31st   [Mar-31-17 10:46AM  Zacks]
▶ South Africa Moves to Keep Welfare Flowing   [02:45AM  at Bloomberg]
▶ Is Lands End, Inc. (LE) A Good Stock To Buy?   [Dec-20-16 02:19PM  at Insider Monkey]
Financial statements of UEPS
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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