UEPS earns revenues by charging governments for cards, merchants for POS terminals, and transaction fees.

The business is extraordinarily profitable, running over 40% operating margins. It also has the very attractive quality of being able to scale at low cost.

Once the initial system is in place, it costs very little for Net 1 UEPS to add additional services like health benefits or to add more cards to reach more people.

These low capital expenditure requirements show up in a 30% free cash flow margin and MFI return on capital averaging well over 100%. Financial health is solid too, with $250 million in cash and no long-term debt.

Clearly, there is big potential for growth. Currently, Net 1 UEPS earns most of it's revenues from a government contract to distribute South Africa's welfare benefits.

Management is targeting several opportunities in less developed countries in areas like Africa, the Middle East, and South America.

The company does not currently have any identifiable economic moat, as it's system is only implemented in a small area.

However, if UEPS is successful in getting it's system accepted in a large number of undeveloped countries, it stands to become a standard and quickly be accepted by other countries.

In this case, UEPS could develop a durable competitive advantage, as well as rapid and exponential growth.

Another scenario could lead to acquisition by a major payment provider, like recently public Visa or MasterCard.

In fact, Forbes recently ran an article on Visa's challenges in undeveloped economies due to non-existent infrastructure needed to supply services.