UEPS -- Morgan Stanley Africa visit

I know that wall street analysts don't have the best reputations but I read their notes when I am able and I use them as part of my process -- that is the key -- how you make use of them. The one risk I would highlight from the top of my lungs -- never ever EVER pay attention to an analysts rating -- all kinds of reasons why an analyst has a rating but only sometimes is it because the analyst thinks the stock in question is going up or will outperform.

But many analysts have great industry contacts and spend a lot of their time doing the arduous legwork of calling customers, suppliers and competitors of the companies they follow to gain insights into a company's demand, market share trends and likely margins. why not pay attention to that kind of data?

Today Morgan Stanley wrote about their visit to Africa -- it was a very interesting report because he talked first hand not only with UEPS management but also with All Pay's (competitor to UEPS) as well as government officials. I can't go to Africa nor do I want to call these people on the phone. MS going there in person has got to provide valuable insights.

Key highlights:

1. expects SA welfare contracts to be announced by end of November -- that should remove a lot of uncertainty from the story -- and he expects that they will retain their current business and pick up an additional 500k to 1 million new welfare recipients as they win contracts in 2 other areas of the country. After talking with all sides, he does not believe UEPS has heavily discounted the price. They sell at a 10-15% premium to all pay but they also are mostly rural whereas All Pay is mostly cities. The two areas MS thinks will be won include one rural area handled by some one else right now that has mismanaged the job -- fraud and everything. The other area is currently split 2/3 UEPS and 1/3 all pay -- only one winner per area so in this case UEPS takes the rest.

2. He also talks about UEPS winning a technology administration deal in SA that could add 20% to current earnings estimates.

3. just working out the details on Nigeria and wage payment in SA -- in the case of wage payments the goal is 1.5 mill new cardholders in the next 3 years (around 4 mill cards in total right now so 1.5 mill is a big jump). Nigeria's economy is 95% cash and their population is 3X the size of SA -- UEPS is likely to gain millions of new cardholders over the next few years. He goes into details about how in nigeria they are lined up with a major bank while the rest of the banking industry is watching -- if the early results are good, then expect other deals with many other banks to rapidly increase distribution and the number of cards outstanding.

4. still working on winning other countries. Plus they are still working on perfecting their virtual credit card (one time use credit card numbers) business -- the technology works its more lining up partners and determining the business model. This tech allows you to make credit card purchases over the phone or over the Internet with the money coming out of your UEPS account. The MS analyst calls this a killer app technology -- they are excited about it.

I know I have gone on and on about FLIR lately, but this is still the biggest opportunity. If this story works then the stock could easly reach $80 to $100 over the next 3-5 years. The earnings potential of this company is huge.