Shares rally 36% as Net1 sells payment processor
The company will use the proceeds of the sale of KSNET to boost liquidity and realise value for shareholders
Shares in financial services and technology group Net1 UEPS, which was recently rocked by a social grants distribution scandal in SA, rose as much as 36% on Monday, its highest close since July 2019, after announcing the sale of its South Korea unit.
The group said on Monday it will sell its South Korean payment processor KSNET for $237m (R3.4bn), a sale worth more than its market capitalisation when the deal was struck.
“Net1 will not have a formal presence in South Korea but we will continue to engage with KSNET and its new owner to identify areas of possible co-operation,” the company said.
Net1 said it will also continue to provide support for the hardware security modules it has provided to KSNET.
Net1, which has its primary listing on the US’s Nasdaq and a secondary listing on the JSE, said it believes the intrinsic value of KSNET was not appropriately reflected in the group’s overall valuation and had opted to sell it to boost liquidity and maximise shareholder return.
“KSNET is a profitable and cash-generative business but operates autonomously and in a more developed economy with limited overlap with the group’s other activities,” said CEO Herman Kotzé.
The KSNET unit processed in excess of 1.7-billion transactions in the 2019 financial year, contributing $138.4m to Net1’s revenues and $9.7m to operating income.
The sale to Stonebridge Capital and Payletter is expected to close in March 2020.
Net1’s share price started the day at R46.22 but quickly rose as the sale was announced, peaking at R63, before closing the day 30.59% higher at R60.36. The company now has a market capitalisation of R3.414bn, having started the day at R2.6bn.
By the end of Friday last week, the company’s share price had lost about 68% since the beginning of 2018. The company was battered by the loss of a lucrative social grants distribution contract with the SA Social Security Agency (Sassa).
Net1 has fought lengthy and costly battles in various courts over the grants system, with its subsidiary Cash Paymaster Services (CPS) ultimately losing its R1.3bn lawsuit against Sassa in July 2019.
CPS’s contract with Sassa ended in 2018 after a number of court judgments. In 2014, the court found that the contract Sassa had signed with CPS two years earlier was illegal and invalid, but it was allowed to continue to give Sassa time to find an alternative for distributing social grants to 17-million recipients.
Net1 has also seen value destruction from its investment in mobile operator Cell C. The company, which acquired its 15% stake in Cell C for R2bn in 2017, recently had to write down its investment, saying it believed that the fair value of its interest in the operator at the end of June “is nil”.