UEPS -- updated info

I wrote about UEPS last about a month ago after Baird had upgraded the stock. His model showed that wage payment would not be a big application for them -- maybe 25 cents of earnings 5 years from now, while Nigeria could be more like $1.50 of incremental earnings.

I just listened to the Morgan Stanley conference call that is available on their website (http://www.aplitec.co.za/) and during the call they mentioned wage payment customers would generate 2-3X as much profits as their current welfare customers due to the higher wages that are paid to workers vs. welfare distribution. Since it took them quite a long time to get access to a banking license to make wage payments, they already have a lot of customers lined up to use this service soon after they get the infrastructure ready. They have 3.5-4 mill cards now used by welfare recipients. In the next few years I could easily see them earning close to $1 in earnings from this area similar to the last few quarters earnings in the welfare business.

The call also covered Nigeria. The CEO explained that they expect 200-300k customers to be signed up within the first 6-7 months and for that country to be breakeven within 12 months. Those initial customers will come mostly from the 8-9 million community bank customers that do not have access to national payment networks, which UEPS can give them. They are also bidding on a national ID tender that could give them access to 65 million cards -- that would be a huge jackpot.

The company also explained their latest technology which has integrated cell phones with existing credit and debit card networks and with the UEPS system to allow what they call virtual payments. It is complicated to explain and this note is long enough already but basically this technology integrates the 3rd world with the 1st world by allowing anyone with a cellphone to buy something using a virtual visa number that accesses their UEPS account. They are trying to get this up and running in Indonesia and Africa. It sounds pretty interesting to me (they talked about using this technology in the money transfer business from the US to the developing world -- Western Union's current domain).

Between continued growth in South African welfare, wage payments in SA, Nigeria, new cell phone technologies, plus other countries and other new services (prepaid electric and water), the growth opportunities for this company are huge. In fact this business sounds so good I continually wonder what I am missing -- it shouldn't be this good. Assuming it is, we should make several times our money in this stock. I am thinking about buying more.