Lesaka Technologies, Inc. (LSAK) Q2 2026 Earnings Call Transcript
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Overview
The earnings call summary indicates strong financial performance with significant growth in net revenue, EBITDA, and adjusted earnings. The Consumer and Enterprise divisions show robust growth, and there is a positive outlook for the Merchant division despite current pricing pressures. The Q&A section suggests a positive sentiment from analysts, with management addressing market opportunities and growth drivers. Despite a high leverage ratio and some uncertainties, the overall positive financial metrics and optimistic guidance, along with the strategic Bank Zero acquisition, suggest a positive stock price movement over the next two weeks.
Key Financial Performance
Net Revenue ZAR 1.6 billion, a 16% year-on-year increase. The increase is attributed to growth in the Consumer and Enterprise divisions, despite a slight pullback in the Merchant division.
Group Adjusted EBITDA ZAR 304 million, a 47% year-on-year increase. This growth reflects organic growth and contributions from acquisitions like Recharger.
Adjusted Earnings ZAR 111 million, growing more than sixfold year-on-year. This growth is attributed to the accretive impact of acquisitions and improved operational performance.
Leverage Ratio 2.5x, flat compared to the previous quarter and down from 2.9x at year-end. This reflects improved financial management and operational performance.
Consumer Division Net Revenue ZAR 567 million, a 38% year-on-year increase. The growth is driven by improvements in distribution, cross-sell momentum, and lending activities.
Enterprise Division Net Revenue ZAR 217 million, a 67% year-on-year increase. This growth includes inorganic benefits from the Recharger acquisition and reflects post-restructure progress.
Merchant Division Net Revenue Decreased by 2% year-on-year. The decline is due to refocusing on high-potential clients and ongoing pricing pressure in the market.
Consumer Lending Originations ZAR 1.2 billion, an 88% year-on-year increase. Growth is supported by new loan products, increased loan sizes, and improved distribution channels.
Insurance Gross Premiums Written ZAR 134 million, a 38% year-on-year increase. Growth is driven by tailored insurance offerings and high collection ratios.
Cash Flows from Operations ZAR 419 million, in line with EBITDA evolution. ZAR 385 million reinvested into lending operations and ZAR 101 million used to fund interest costs.
Capital Expenditure ZAR 84 million, with ZAR 48 million spent on growth investments like Smart Safe product expansion and software development.
Operating Margin 19%, up from 15% a year ago. This improvement reflects scaling of the platform and operational efficiencies.
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Operating Highlights
One Lesaka launch: Consolidation of all operating brands under a single brand, One Lesaka, to combine digital capabilities with physical presence and improve customer reach.
New lending product: Increased loan size from ZAR 2,000 to ZAR 4,000 and maximum tenure from 6 months to 9 months, contributing to record loan originations.
Proprietary payment switch: Launched a proprietary payment switch, processing 40% of merchant card acquiring volumes in-house, improving profitability and client service.
Expansion in underserved markets: Focused on providing financial services to underserved consumers and merchants in Southern Africa, with a significant increase in active consumer base and merchant base.
New partnerships: Partnerships with Shoprite and Spar, adding thousands of distribution points to the network.
Office consolidation: Consolidating multiple offices into single locations in Johannesburg, Cape Town, and Durban to improve cost and cultural efficiencies.
Efficiency improvements: Group costs reduced to ZAR 50 million this quarter, closer to long-term run rate, and CapEx as a percentage of EBITDA decreased from 46% to 33% year-on-year.
Bank Zero acquisition: Received Competition Tribunal approval for the acquisition of Bank Zero, expected to deliver funding and balance sheet benefits.
Simplification of operations: Exited Cell C stake and resolved legacy CPS contract, simplifying operations and releasing ZAR 115 million in accruals.
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Risk or Challenges
Competition Tribunal approval for Bank Zero combination: The approval is a significant step forward, but the company is still awaiting approval from South Africa's Prudential Authority, which could delay the integration and associated benefits.
Consolidation of operating brands under One Lesaka: While this initiative aims to deliver cost and cultural efficiencies, it involves significant operational changes, which could disrupt current operations and delay expected benefits.
Merchant division transformation: The division is undergoing significant changes, including unifying brands and streamlining costs. However, this has led to a 2% revenue decline and ongoing pricing pressure, with growth expected to remain flat until FY '27.
Consumer division lending growth: The rapid growth in lending activities increases credit risk, and the company must actively manage provisioning to mitigate potential defaults.
Enterprise division reliance on new product platforms: The division's future earnings growth depends on the successful launch and adoption of new product platforms, which carries execution risk.
Leverage ratio and funding structure: The current leverage ratio of 2.5x is above the medium-term target of 2x, and the company is reliant on the completion of the Bank Zero transaction to improve its funding structure and cash conversion rate.
Merchant division pricing pressure: Ongoing pricing pressure in the market is impacting revenue and could affect the division's ability to achieve its growth targets.
Consumer division insurance expansion: The expansion of insurance products to the open market introduces competitive risks and the challenge of maintaining high collection ratios.
Enterprise division collector and receiver network expansion: While expanding the network offers growth opportunities, it also requires significant investment and operational focus, which could strain resources.
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Guidance & Outlook
Net Revenue Guidance for Q3: Net revenue is expected to range between ZAR 1.65 billion and ZAR 1.8 billion, with the midpoint implying a growth rate of approximately 27%.
Group Adjusted EBITDA Guidance for Q3: Group adjusted EBITDA is projected to be between ZAR 300 million and ZAR 340 million, with the midpoint implying growth of approximately 37%.
Full Year Net Revenue Guidance: The company reaffirms its full-year net revenue guidance of ZAR 6.4 billion to ZAR 6.9 billion, implying growth rates of 21% to 30%.
Full Year Group Adjusted EBITDA Guidance: The full-year group adjusted EBITDA is expected to range between ZAR 1.25 billion and ZAR 1.45 billion, implying growth rates of 36% to 57%.
Bank Zero Acquisition Impact: The guidance excludes any impact from the Bank Zero acquisition, should it complete within this financial year.
Consumer Division Growth Expectations: The Consumer division is expected to continue its strong growth trajectory, with lending activities driving earnings growth in Q3 and Q4.
Merchant Division Growth Outlook: The Merchant division is undergoing a transformative year and is expected to have flat growth for the rest of the fiscal year, with a return to growth anticipated in FY 2027.
Enterprise Division Earnings Contribution: Stronger earnings contributions are expected later this year and into FY 2027 as new product platforms come online and merchant acquiring volumes are internalized.
Leverage Ratio Target: The company aims to reduce its leverage ratio to 2x or lower in the medium term, down from the current 2.5x.
Operating Margin Projections: Post-transformation of the Merchant division and the Bank Zero acquisition, operating margins are anticipated to trend towards 30%, up from the current 19%.
Capital Expenditure Trends: Capital expenditure is expected to remain below ZAR 400 million annually, with CapEx as a percentage of EBITDA decreasing from 46% a year ago to 33% this quarter.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Is the increase in transaction fees an annual event? And on the insurance and lending, is this an underserved market or do you have to take share from competitors?
A:Yes, transaction fees are reviewed and increased annually. On the insurance and lending side, the market is underserved, with many customers lacking access to formal institutions. The company is providing fair and transparent loans, taking market share from unregulated micro-lenders and competitors.
Q:How do you see ARPU trending over the next 6 to 12 months?
A:ARPU is expected to stabilize and then increase over the next 12 months, driven by collective product performance rather than individual product ARPU.
Q:Is the decline in product penetration in Merchant a timing issue? When do you expect it to start improving?
A:The product penetration rate has not declined year-on-year but increased marginally. The strategy is to cross-sell additional products, and acquiring is a key focus area for growth.
Q:What are the drivers behind Consumer lending growth, and what is the outlook for the next year?
A:Drivers include increased loan sizes (from ZAR 2,000 to ZAR 4,000), extended tenure (6 to 9 months), and digital channels for loan applications. 40% of originations are from medium-term loans, and 8% are from digital channels. Growth is expected to continue as the product evolves.
Q:What are the marketing costs related to the rebranding?
A:Rebranding costs are estimated to be between ZAR 50 million and ZAR 75 million for the next two quarters.
Q:What is the rand amount of deposits estimated to be transferred to Bank Zero after the merger?
A:The gross debt of the business is expected to reduce by over ZAR 1 billion post-merger, but no specific deposit amount was provided.
Q:Review of Unclear Management Responses
A:Management avoided providing a specific number for the rand amount of deposits estimated to be transferred to Bank Zero after the merger, stating only that the deposit base would increase substantially.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ADP
ARPU function
Adumo
Bank Zero
Community
Enterprise division
Southern Africa
TPV
Utilities
ZAR month
account
airtime
approval
book
channel
collector
consumer merchant
contribution
core driver
credit
distribution
electricity
function product
group
insurance
lending
leverage ratio
loan
network
offering
partner
payment
presentation
profile
rate
team
transaction
trend
volume
LSAK Transcript
Lesaka Technologies, Inc. (LSAK) Q2 2026 Earnings Call Transcript
Positive2-5
The earnings call summary indicates strong financial performance with significant growth in net revenue, EBITDA, and adjusted earnings. The Consumer and Enterprise divisions show robust growth, and there is a positive outlook for the Merchant division despite current pricing pressures. The Q&A section suggests a positive sentiment from analysts, with management addressing market opportunities and growth drivers. Despite a high leverage ratio and some uncertainties, the overall positive financial metrics and optimistic guidance, along with the strategic Bank Zero acquisition, suggest a positive stock price movement over the next two weeks.
Lesaka Technologies, Inc. (LSAK) Q1 2026 Earnings Call Transcript
Positive11-6
The earnings call summary indicates strong financial performance with significant year-over-year increases in revenue and adjusted EBITDA across divisions. The Bank Zero acquisition and strategic focus on core products and brand consolidation are positive catalysts. Despite some concerns about nonrecurring costs and lack of specific data on cost savings, guidance remains strong with expectations of continued EBITDA growth. The market response is likely positive, given the record revenue growth and optimistic outlook, although lack of market cap data limits precision in impact assessment.
Blackline Safety Corp. (BLN:CA) Q3 2025 Earnings Call Transcript
Positive9-11
The earnings call summary and Q&A session highlight several positive aspects: strategic wins with ADNOC, sustained demand for rentals, and a strong pipeline despite macroeconomic challenges. While management is cautious, they express optimism about future growth, particularly in the Middle East. The company is also focusing on optimizing margins and working capital. Despite some uncertainties, the overall sentiment is positive, suggesting a potential stock price increase of 2% to 8% over the next two weeks.
Lesaka Technologies, Inc. (LSAK) Q4 2025 Earnings Call Transcript
Positive9-11
The earnings call reveals strong year-on-year premium growth and promising growth opportunities in both Consumer and Enterprise divisions. The Q&A section highlights strategic initiatives such as the Bank Zero transaction, which is expected to be close to profitability, and positive regulatory engagements. While there are some risks and uncertainties, the overall sentiment is optimistic with a focus on market expansion and innovation. Despite a goodwill impairment, the company's differentiation and strategic positioning suggest a positive outlook for stock price movement.
LSAK Report
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