Executive Summary / Key Takeaways

• Lesaka Technologies is executing a transformative strategy to become a leading integrated fintech platform in Southern Africa, targeting underserved consumers and merchants through a multi-product offering and strategic acquisitions.
• Recent financial results demonstrate significant progress, including a return to operating profitability and strong growth in Group Adjusted EBITDA, driven by robust performance in the Consumer segment and contributions from recent acquisitions like Adumo and Recharger.
• The company's differentiated technology, including its proprietary payment switch and specialized hardware/software solutions, provides a competitive edge in efficiency and tailored services for its target markets.
• Management has provided compelling guidance for FY2025 and FY2026, projecting continued strong growth in Net Revenue and Group Adjusted EBITDA, and importantly, targeting positive U.S. GAAP net income by FY2026, signaling increasing confidence in sustainable profitability.
• While integration risks and navigating the evolving regulatory landscape in South Africa present challenges, Lesaka's strategic positioning, improving financial health, and disciplined M&A approach underpin a compelling investment thesis focused on capturing the significant digitization opportunity in the region.

The Transformation of Lesaka: From Legacy to Integrated Fintech

Lesaka Technologies, Inc. is charting a course to redefine financial services in Southern Africa, focusing on the vast, often underserved, markets of consumers and businesses. Incorporated in 1997, the company's journey has been one of significant evolution, marked by strategic shifts and transformative acquisitions. The acquisition of the Connect Group in April 2022 stands as a pivotal moment, fundamentally reshaping Lesaka into the integrated platform it is today, moving from a sub-scale, loss-making entity to one focused on profitable growth. This foundational step has been rapidly augmented by further strategic transactions, including the integration of Touchsides in May 2024 and the significant acquisitions of Adumo (completed October 1, 2024) and Recharger (completed March 3, 2025). These deals have not merely added scale but have broadened Lesaka's product suite and deepened its penetration across distinct customer segments: Consumer, Micro Merchant, Merchant, and Enterprise.

The competitive landscape in Southern African fintech is dynamic, featuring a mix of traditional banking giants and agile fintech players. Lesaka positions itself not just as another financial service provider, but as a specialist building an integrated, multi-product platform tailored to the unique needs of its target markets. Unlike traditional banks, which are often product-centric and built on legacy infrastructure, Lesaka aims to compete on value and efficiency, particularly in areas where traditional players are poorly equipped. While large banks like Capitec (CPI) and Standard Bank (SBK) hold significant market share in retail banking and processing, LSAK's focus on digital inclusion for the unbanked and underserved, combined with its expanding suite of integrated services (card acquiring, cash management, lending, software, alternative digital payments), differentiates it from both traditional banks and single-product fintech competitors. The company's strategy is to leverage its understanding of these specific customer pain points to offer a more compelling and sticky value proposition, aiming to capture increasing market share as the region digitizes.

Central to Lesaka's strategy and competitive positioning is its differentiated technology. The company is investing in and enhancing its proprietary platforms to deliver tailored solutions. Key technological assets include the recently launched Prism Switch, designed to enhance go-to-market strategy, internalize transaction flows for efficiency, and provide advanced security features through Hardware Security Modules (HSM). In the Merchant segment, solutions like the Cash Connect vaults enable immediate cash digitization, a critical need in a cash-heavy economy, facilitating a pull-through to digital payments and other services. The GAAP hospitality platform provides integrated point-of-sale software and hardware, while the revitalized EasyPay platform serves as a payment aggregator with an extensive network of billers. For consumers, the investment in digital channels like the USSD platform demonstrates a focus on accessibility and convenience, enabling services like loan applications and VAS purchases without requiring smartphone penetration or data access. Management highlights that this technological focus aims to improve efficiency, enable cross-sell opportunities, and create a competitive moat by offering capabilities specifically suited to the operating environments and needs of underserved customers. While specific quantifiable metrics comparing the efficiency gains of Lesaka's proprietary tech versus all competitor alternatives are not uniformly detailed across all products, the company emphasizes that these investments are designed to drive better unit economics, reduce customer acquisition costs, and increase the take rate, contributing to improved financial performance and market position over time.

Performance Reflecting Strategic Execution

Lesaka's recent financial performance underscores the impact of its strategic transformation and operational focus. For the third quarter of fiscal 2025, the company reported revenue of $135.7 million (ZAR 2.5 billion) and Group Adjusted EBITDA of $12.8 million (ZAR 237 million), meeting its guidance targets. Year-to-date fiscal 2025 revenue stood at $428 million (ZAR 7.75 billion), with Group Adjusted EBITDA reaching $34 million (ZAR 617 million). While gross revenue figures can be influenced by the accounting treatment of certain low-margin products like prepaid airtime, the company emphasizes Net Revenue as a clearer indicator of top-line performance. For the nine months ended March 31, 2025, Net Revenue showed significant growth, reflecting the underlying expansion of the business and the impact of acquisitions.

The turnaround to operating profitability is a notable achievement. For the year ended June 30, 2024, operating income improved significantly to a profit of $3.6 million (ZAR 67 million) from a loss of $15.4 million (ZAR 275 million) in the prior year, even after accounting for transaction costs and non-cash amortization. This trajectory continued into fiscal 2025, with operating income before transaction and related costs increasing, primarily driven by strong performance in the Consumer segment and the initial contributions from Adumo and Recharger.

Segment performance highlights the key growth engines. The Consumer division has been a standout performer, demonstrating robust growth in both revenue and profitability. For the nine months ended March 31, 2025, Consumer revenue increased 36% year-over-year to $68.1 million, with Segment Adjusted EBITDA surging 78% to $15.1 million. This growth is fueled by a growing base of EasyPay Everywhere (EPE) transactional account holders (reaching 1.7 million total, 1.5 million permanent grant recipients by Q3 FY25), successful cross-selling of lending and insurance products (loan penetration reaching 45%, insurance 35% on the permanent grant base by Q3 FY25), and benefiting from customer migration due to operational issues at competitors like Post Bank. The average revenue per user (ARPU) for permanent grant beneficiaries has steadily increased, reaching ZAR 106 per month in Q3 FY25, reflecting the success of the multi-product strategy.

The Merchant division, significantly expanded by the Adumo acquisition, also shows strong underlying performance. For the nine months ended March 31, 2025, Merchant revenue was $334.4 million, with Segment Adjusted EBITDA of $26 million. While Q3 FY25 saw a decrease in gross revenue due to lower low-margin prepaid airtime sales, Net Revenue and EBITDA benefited from the inclusion of Adumo and increased activity in higher-margin areas like card acquiring and supplier-enabled payments. The division is focused on integrating the acquired businesses, optimizing unit economics, and leveraging the expanded product suite (card acquiring, cash management, lending, software, ADP) across a larger merchant base (over 120,000 merchants with ZAR 270 billion+ annual throughput).

The Enterprise division is currently in a build and restructuring phase. For the nine months ended March 31, 2025, Enterprise revenue was $30.3 million, with Segment Adjusted EBITDA of $0.5 million. This reflects investments in new technology like the Prism Switch and the impact of exiting unprofitable legacy contracts. The Recharger acquisition is expected to significantly boost this segment, providing an entry into the prepaid electricity market and contributing to EBITDA growth in FY2026.

Liquidity and balance sheet management are also key areas of focus. As of March 31, 2025, cash and cash equivalents stood at $71 million. The company successfully completed a ZAR 4.5 billion debt refinance in February 2025, consolidating facilities, reducing the weighted average borrowing rate by approximately 1.3% per year (a saving of about ZAR 52 million annually on ZAR 4 billion gross debt), and increasing financial flexibility. Gross debt increased to ZAR 4 billion by Q3 FY25, primarily to fund acquisitions and growth in the loan books. The net debt to Group Adjusted EBITDA ratio was 2.8x at the end of Q3 FY25, within covenant limits. The company aims to reduce this ratio to a medium-term objective of 2x, partly through organic EBITDA growth and potentially through the monetization of its non-core MobiKwik (MOBIKWIK) investment (valued at $22.1 million as of March 31, 2025), which is expected to become liquid post-lockup in June 2025.

Outlook and the Path to Sustainable Profitability

Management's outlook reflects increasing confidence in Lesaka's growth trajectory and path to sustainable profitability. For the full fiscal year 2025, the company reaffirms guidance of Revenue between ZAR 10 billion and ZAR 11 billion, Net Revenue between ZAR 5.2 billion and ZAR 5.6 billion (implying 35% year-on-year growth at the midpoint), and Group Adjusted EBITDA between ZAR 900 million and ZAR 1 billion (implying 37% year-on-year growth at the midpoint). Excluding the impact of acquisitions and changes in interest allocation, this guidance represents over 30% like-for-like organic EBITDA growth.

Looking further ahead, the guidance for fiscal year 2026 is even more ambitious, projecting Revenue between ZAR 11.4 billion and ZAR 12.2 billion, Net Revenue between ZAR 6.4 billion and ZAR 6.9 billion, and Group Adjusted EBITDA between ZAR 1.25 billion and ZAR 1.45 billion. The midpoint of the FY2025 to FY2026 EBITDA guidance implies a significant 42% year-on-year growth. This strong outlook is driven by expected continued growth across all three divisions, operational leverage from scaling the platform, realization of synergies from integrated acquisitions, and the increasing contribution of the Enterprise segment.

A key milestone in the FY2026 guidance is the projection of achieving positive net income on a U.S. GAAP basis for the full year. This marks a significant step beyond adjusted profitability measures and signals management's expectation of covering non-cash charges like depreciation and amortization, as well as interest expenses, through operating performance. The projected Group Adjusted EBITDA to Net Revenue margin is expected to improve from approximately 18% in FY2025 to over 20% in FY2026, with a medium-term aspiration to trend towards a 30% group margin.

The strategic roadmap includes continued disciplined M&A, with plans for both frequent bolt-on acquisitions to augment existing capabilities and potentially further transformative deals to expand scale and addressable markets. These acquisitions are expected to be EBITDA accretive and generate operational synergies, compounding organic growth.

However, the path forward is not without risks. Integrating multiple acquisitions simultaneously requires significant management attention and carries the risk of cultural clashes or failure to retain key personnel, which could impact performance. The company is also exposed to the evolving regulatory environment in South Africa, particularly concerning banking licenses, payment schemes, and proposed new regulations that could alter the operating landscape and potentially increase compliance costs. Dependence on third-party suppliers for hardware and components also poses a risk of supply shortages or price fluctuations. Credit risk in the lending portfolios remains a factor, although management highlights stable loss ratios. Furthermore, the volatility of the South African Rand against the U.S. dollar introduces translation risk, impacting reported results.

Conclusion

Lesaka Technologies is undergoing a profound transformation, leveraging strategic acquisitions and technological investments to build a leading integrated fintech platform in Southern Africa. The company's focus on serving underserved markets with a comprehensive, customer-centric product suite is yielding tangible results, as evidenced by the turnaround to operating profitability and strong growth in Group Adjusted EBITDA. The recent acquisitions of Adumo and Recharger significantly enhance Lesaka's scale, product offerings, and competitive positioning across the Consumer, Merchant, and Enterprise segments.

Management's robust guidance for FY2025 and FY2026, including the target of achieving positive U.S. GAAP net income, reflects growing confidence in the sustainability of this growth and the potential for increasing operational leverage. While integration challenges, regulatory uncertainty, and market risks persist, Lesaka's clear strategy, improving financial health, and disciplined approach to capital allocation and M&A position it to capitalize on the significant digitization opportunity in the region. For investors, the story is one of a rapidly evolving business with substantial growth potential, driven by strategic execution and the ambition to become a dominant player in a high-growth market.