UEPS

UEPS reported earnings at the end of August and they appeared in line but I read a report from Thomas Weisel today that talked about how revenues would have missed if not for higher than expected software sales -- i.e. lower quality since the company has some control over when those revenues are booked. Transaction revenues -- i.e. payments for card usage came in lower than expected due to start up delays with a new set of 300k welfare beneficiaries UEPS was awarded by the south african government as well as some civil servant strike -- one time temporary factors that should be past.

They also faced some margin pressure due to the lower revenues and start up costs -- I expect this will be a common theme because they have so many new projects starting up this has to hit margins in the near term but once the infrastructure in Nigeria is built (or wage payment in SA, or all the other countries they are entering) and the revenues start to flow in, margins will expand dramatically. They won a share in a smart card contract in Nigeria for 65 mill cards -- vs. the 4 mill they have now. They are working out the details with the other party that won and the government but this should be a big deal.

Welfare contract is now an October event they hope -- with elections in December if they don't get a decision by late October, there is a good chance they won't get an answer for another year. The delay would suck. Given that this is 75% of revenues, resolution is a key issue for the stock.

Owned this a year now and have nothing to show for it -- still tons of promise but the multiple keeps dropping. I doubt the stock will be flat for another year -- there should be some visibility on various growth engines over the next year to get the stock moving:

1. welfare contract resolution
2. wage payment -- how quick is the ramp in customers; how profitable per card is the new service?
3. Nigeria -- how quick is the ramp in customers and how profitable per card will they be?
4. Ghana's new mobile bank project -- using the virtual credit card payments (linking master card/visa with UEPS in a way that allows secure payments over the cellular net or Internet.

I don't have the best track record of predicting what will be my biggest future winner, but I still believe this is it -- more upside here than any of my other stocks (with possible exception of my biotech GNVC). The numbers tell the story -- 4 mill customers now and 3 billion people in world without bank account. if they can get even 1% share that's 7X current number of cards.