Wednesday, July 29, 2009

UEPS

I bought UEPS on June 23rd and am already up a nifty 31%. They are an electronic payment processor allowing people to pay things electronically. What makes them unique is that they are in South Africa, so it is an emerging markets play.

They have a 908m market cap, they have 121m in excess cash and i calculate a 13% earnings yield and 145% return on capital. One thing I found intriguing was that when they announced their earnings in May, the stock dropped from $14.55 to $12.32. Why? I think it was their revenues, which dropped YoY from $63m to $56m. But if you did a little digging, you'd find out that was virtually all exchange rate driven. On a constant currency basis, they were up a very snappy 19%.

I don't have the exact numbers, but back around April 1st the exchange rate was about 9 South African Rands to a dollar. It is currently around 7.9. which is about 5% worse than June 2008 (to put it in perspective, April 1st 2009 was a 34% decline over April 1st 2008!).

What does all of this mean? Well, while in USD they were down over 10% in q1, it would seem that in q2 (assuming they maintain the 19% constant currency rate) they will show 13 to 15% growth is USD.

How many companies are showing 13 to 15% top line (and bottom line) growth YoY? I expect to see their income grow from 14m in q1 to $26 to $28m in q2... driven by more favorable exchange rates and real growth.

They are trading at $16.45 down from a 52 week high over $27. I think there is a lot of upside here. Stay tuned.

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