Leverage a growing mobile payment game
- Pre-tax interim profit up 20% to £5.5m on revenue up 16% to £28.6m
- Record exchange in November and December 2021
- Early traction from partnership with Ventro
- Scaling more profitable verticals leads to higher gross profit margin
- 12 new customers added to the customer base in the first half
Fonix-Mobile(FNX:154p)’s core business is a mobile payment service that allows merchants to charge customers’ mobile phone bills for products or services. In effect, carrier billing turns the mobile device into a cash register while providing convenience to consumers.
The latest half-year results highlight that Fonix’s payment platform is not only highly scalable (it can process up to 2,000 transactions per second), but is an important customer acquisition tool for customers. By offering an alternative payment method to consumers who might otherwise forego purchasing, Fonix’s payment platform differentiates itself from traditional payment methods, such as credit cards or ApplePay. For example, the group’s new partnership with Venntro, a company that operates 2,500 white-label dating sites, resulted in an eye-catching 28% increase in new same-day subscribers (users who upgrade the day they join a dating site) within the first weeks of carrier billing launch.
The payment platform is also proving attractive to corporate customers – 12 new customers have been added in the past half year – looking for an alternative to traditional cash transactions which have a high processing cost. Moreover, by focusing on more profitable verticals such as parking payments, movie tickets, paid gyms, games and even public transport, the group also increases its own profitability. Fonix’s gross profit increased from 4.7% to 5.1% as a proportion of total deal value (from £123m to £138m), resulting in higher gross profit 20% to a record £7 million.
Fonix’s payment solutions are also proving popular with charities. For example, the group’s market-leading ‘text to donate’ and ‘click to donate’ products were a central part of the football aid campaign by ITV and the Ruth Straus Foundation during the Lord’s Test. last summer’s game between England and India. The £10 billion charitable giving market continues to be an unprecedented opportunity for Fonix, as is customer-led international expansion into neighboring Western European markets. A customer retention rate of nearly 100% highlights high levels of customer satisfaction.
Property broker FinnCap maintains its annual gross revenue and profit estimates of £53m and £13m based on growth of 11% and 15%, respectively. On this basis, expect annual pre-tax profit of £9.6m and earnings per share (EPS) of 7.9p to support a 15% rise to 6p in dividend per share paid. from free cash flow of 7.5 pa per share.
However, FinnCap views its estimates as conservative, as administrators say the underlying run rate is robust, so much so that the second half will be only marginally weaker than the seasonal first half (gross profit of $7 million). pound sterling). An earnings overshoot is highly likely, while the ongoing outperformance is expected to continue into fiscal year 2022/23, a factor not factored into a 17.5 forward 12-month price-earnings (PE) ratio.
Fonix’s 5%+ free cash flow yield, prospective dividend yield of 4.3% for FY22/23 and strong organic growth prospects also provide defensive qualities. This explains why the stock has risen slightly since my last buy call (“Profiting from the boom in mobile payments”, September 23, 2021), and has produced a total return of 15% since I started hedging (Alpha Research: A Trading Opportunity to Profit from the Mobile Payments Boom,” August 5, 2021) during which the FTSE Aim All-Share Total Return index lost 20% of its value. I see material up from my 190p target. To buy.
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