11-05-2025
From São Paulo to Soweto — how Prosus and Lesaka are defining growth on the JSE
Prosus and Lesaka present a tale of two tech companies and their differing approach to growth
Growth stocks aren't very common on the JSE. This is unfortunately a function of the broader economic situation that we've been in for many years now, where South Africa just isn't a supportive environment for high-growth companies. And where they do exist, they often have offshore exposure as the major source of excitement!
An example of this is Prosus-Naspers. Although it does own some South African businesses, that's not where the focus is for group investors. It's all about the opportunities in places such as China, India and South America. With Fabricio Bloisi at the helm, Prosus could be described as building a 'non-US' platform business that takes advantage of various different e-commerce models. Given the questions being asked at the moment about whether US exceptionalism is still a thing, that seems like an appealing strategy.
All talk and no action doesn't cut it though, so shareholders are focusing on whether Prosus can transform from an incoherent group that was built with a spray-and-pray acquisition strategy into a sensible portfolio of profitable, successful businesses. So far, so good – in a letter to Prosus shareholders, Bloisi noted that the group expects to achieve more than $435-million (R7.9-billion) in adjusted earnings before interest and taxes (EBIT) for the 2025 financial year, which is in excess of the target of $400-million (R7.3-billion).
Within that growth story, there are pockets of particularly high growth, like OLX (adjusted EBIT up more than 50%) and iFood (adjusted earnings before interest, taxes, depreciation and amortisation – EBITDA – more than doubled). There are also longer-term plays to help the group reach its target of 'many, many billions' rather than just millions when it comes to adjusted EBIT. India is perhaps the most interesting one on the table at the moment, with Prosus having invested in various platform businesses in the region. And of course, let's not forget the potential of Tencent in China.
I have a long position in Prosus as I have really been enjoying the narrative coming from Bloisi since he joined the group. It's encouraging to see the delivery on promises thus far, supporting a share price increase of more than 30% in the past year. This has also been highly supportive of the local broad market index, as Naspers is the largest constituent of the Top 40 and Prosus is the sixth largest. Together, they contribute roughly 17.5% of the index. Although the underlying growth might not be happening in South Africa, local investors are certainly benefiting from it.
It's wait-and-see for Lesaka Technologies
Another example of a locally listed growth stock is Lesaka Technologies, best described as a multiproduct fintech group that is particularly focused on SMEs and micro-merchants. This group isn't just locally listed, it is also focused mainly on South Africa and the broader continent in its strategic thinking.
Although this is exciting, it's also not easy. It doesn't have a cash cow in the form of Tencent, and it certainly doesn't enjoy the scale or fortress balance sheet of Prosus-Naspers. Lesaka has a great deal of debt and a need to scale at pace to get on the right side of that debt.
This financial risk is an overhang for the share price, with Lesaka down nearly 19% in the past 12 months despite posting decent growth in the underlying businesses. South African investors aren't particularly in love with the concept of adjusted EBITDA and how this gets used by growth stocks to tell a story around a scaling platform that isn't able to generate net profits yet owing to its funding profile. In the latest quarter, Lesaka reported adjusted EBITDA of R237-million, up 29%. It also reported a headline loss of $22-million or R400-million (note the currency here), much worse than $4-million (R73-million) a year ago. Although it is projecting positive net income in 2026, the market is taking a wait-and-see approach on this one
Debt pressures certainly aren't stopping Lesaka from investing for the future. It can't sit on its hands, as the group hasn't scaled to a level that is sustainable. This is why group capital expenditure as a percentage of group-adjusted EBITDA has been between 35% and 57% over the past year, most of which relates to point-of-sale devices and cash vaults.
The market will keep a close eye on the trend in adjusted EBITDA margin, particularly as EBITDA is ultimately what services the debt. It doesn't help to invest heavily to support revenue growth unless that revenue turns into profits. In Lesaka's merchant division, net revenue was up 58% but adjusted EBITDA was up just 7%, so there's quite a lag there. The consumer division was thankfully the other way around in terms of margin trend, with revenue growth of 32% supporting EBITDA growth of 65%.
Lifting our heads to the broader trend in the group is a worthwhile exercise. Through a combination of acquisitions and organic growth, Lesaka has scaled from revenue of R1.3-billion in the 2022 financial year to guided revenue of R5.2-billion–R5.6-billion in the current financial year. Group adjusted EBITDA has moved from a negative R328-million to guided positive earnings of R0.9-billion–R1-billion. The question is whether the incremental adjusted EBITDA margin is lucrative enough. Assuming it hits the upper end of FY25 guidance for the sake of the maths, it would have grown revenue by R4.3-billion and EBITDA by more than R1.3-billion from FY22–F25, which is an incremental adjusted EBITDA margin of 30%. As platform businesses go, that's not as exciting as one would hope.
Fintech models don't always enjoy the highest margins, as much of their business is built around payments solutions that are hotbeds of competition among banking groups and other fintech companies. Lesaka will need to demonstrate to the market that it can achieve consistently strong EBITDA margins, all while scaling quickly enough to overcome the substantial net debt pile of R2.3-billion. Building a genuine market disrupter isn't easy. DM
