THE BOTTOM LINE
Net1: There may be life beyond social grants, but it’s a grind
Investors were not persuaded by talk of strong market growth after its SA Social Security Agency stint
Net1 CEO Herman Kotze sounded reasonably upbeat in a teleconference with analysts last week following the release of what one analyst described as a “shocking” set of quarterly results. Presumably the more shocking the results, the more upbeat you have to sound.
Kotze referred to a “new dawn” for Net1 in SA since October 1 when the company was relieved of the Constitutional Court obligations to ensure the smooth payment of social grants to almost 11 million recipients every month.
The subsequent crash in the share price towards all-time lows indicates investors were not persuaded by his talk of strong post-SA Social Security Agency market growth. They may instead have focused on his warnings that the next few quarters could also be a bit tough.
It is difficult to imagine that things might not improve from the extremely tough situation facing Net1 during the six months to end-September. Its Cash Paymaster Services (CPS) subsidiary was forced to continue distributing cash grants to hundreds of thousands of rural-based recipients.
The pay points are located deep in rural territory and are extremely expensive to service as they require mobile ATMs and hours of driving across rough terrain. And there’s the security costs to consider.
CPS reckons it cost them around R45 per rural recipient, which is a long way off the R14.42 they were receiving in terms of the Constitutional Court ruling. The R45 cost for rural recipients wasn’t a problem during the period of the contract because the majority of recipients are urban-based and cost considerably less than R14.42.
Now Net1 has to persuade the court, contrary to the views of the court-appointed expert panel, that it deserves a hefty top-up payment for the six months’ work. The court will be aware the SA Post Office will use any sign of generosity to boost its own claims.