Photo: iStock The JSE All-Share Index is flat year-to-date. The Resource 10 is certainly helping here, up 11.3% year-to-date. The Financial 15 being up 2.5% is an indication that our local market strength goes beyond the gold price.
If you dig deeper into our market, you’ll find some particularly interesting companies that are promising strong growth stories. In the past year Araxi is up 37%, and they’ve just released a detailed circular for a R1-billion acquisition in the payments space. Purple Group is an organic growth story at present, with an exceptional rally in the share price of 95% in the past 12 months.
There are some great stocks on our local market, if you know where to look. Let’s begin with Araxi and their transformative acquisition of 80% in Pay@.
Betting on payments
Araxi has two core business lines.
The first is payments, a wonderful business that generates recurring revenue. There’s natural protection against inflation in this business model, with other important growth tailwinds such as adoption of digital transactions by consumers.
The second is software, a lumpy business for which the market has little time and energy. Globally, there are tough questions being asked about software companies in the age of AI. At Araxi, this business feels increasingly like a distraction for investors and a drag on the valuation.
The good news is that the latest deal – the acquisition of 80% of Pay@ – is firmly in the payments space. This is a scale player that processed more than R60-billion in transaction value in the 12 months to February 2026. Pay@ has been around since 2007, so they’ve been playing the long game and building a moat.
How did they do it? The initial focus was on bill payments, giving them a foothold in the market. Pay@ then expanded into other payment types and geographies, with operations in most of South Africa’s neighbouring countries.
We know that Covid drove a major acceleration in digital payment adoption. Online shopping is just one good example. Pay@ has taken full advantage of this trend, with transaction volumes achieving a compound annual growth rate (CAGR) of 19% from FY21 to FY25.
Whenever you see a fintech acquisition, you always need to ask the tough question: is the business actually profitable? Pay@ achieved adjusted Ebitda of more than R130-million in FY25, having achieved a CAGR in Ebitda of 20% from FY21 to FY25. So, the short answer is yes, the business makes money.
The high margins (34% net profit margin), strong growth and natural strategic fit in Araxi’s group has resulted in a meaty price being paid for the asset. If you use numbers for the year ended February 2025 (the latest available detailed numbers), this is a price/sales multiple of 4.6x and a price/earnings multiple of roughly 13x.
Strategically, investors will like this deal. Financially, there might be some nerves around the valuation. Those nerves won’t be helped by the R800-million in debt that Araxi is incurring to execute this transaction.
The days of a fortress balance sheet at Araxi are behind us, with the group electing to roll the dice on a substantial deal. For context, Araxi’s market cap is under R2.3-billion – a R1-billion transaction is no joke in terms of risk.
Betting on investors
Purple Group, best known as the controlling shareholder in Easy Group (EasyEquities), is enjoying a period of rapid growth. You’ll struggle to find many naysayers these days, since the business model has proved to be an incredible success.
It wasn’t always like this, of course. For many years, Purple Group was too reliant on activity-based revenue. If investors weren’t buying or selling shares, Purple wasn’t making money. A major strategic shift happened in the past couple of years, with the company pursuing recurring revenue streams across new and existing products.
It was a brave decision that turned out to be a masterstroke, with non-activity-based revenue now contributing 52.6% of total Easy Group revenue. This has been a game changer for earnings visibility, which means that the valuation of the group benefits as well.
Purple has numerous growth engines that seem to be firing on all cylinders. The retirement business is just one excellent example, where assets have tripled over three years. EasyRetire is doing a great job of attracting assets and disrupting the status quo.
Another area that they plan to disrupt is the asset management space. This is a perfect example of the group’s pursuit of recurring revenue. They have nearly 1.25 million clients in their ecosystem, creating a clear opportunity to distribute additional financial products into this user base.
The nasty pimple on the nose of this result was EasyTrader, where they suffered a net hedging loss of R21.3-million. Much like the software business at Araxi, this is an area where the market has asked tough questions. With only 6,842 funded clients, one has to wonder if the more complex services are really a good fit in this group?
Compare this with EasyEquities Philippines, where they are aiming to have 500,000 active users by the end of 2027. If they get anywhere close to that target, they would’ve shown the market that the group can scale into a global emerging and frontier markets player. That will create infinitely more shareholder value than EasyTrader could realistically achieve.
Purple is creating generational wealth for its investors. I have a long position here and I’m very happy with it. I just hope that management won’t overextend themselves by trying to do too many things at the same time. DM