New broker research suggests the time may be right to buy shares in
-First half results for
-Nonetheless, brokers have maintained Buy ratings
-Scalability and operating leverage are generally expected
-Recent trading updates show a rebound in transaction value
As for many technology-focused stocks, the share price for payment processor
Unfortunately, first half results in late February only accelerated the trend.
Results disappointed due to increased operating expenses and a lack of operating leverage, according to
Nonetheless, the broker suggests investors are currently presented with an attractive entry point for shares, as the business is on the verge of margin expansion and positive free cashflow.
The company's core payments offering revolves around providing purpose-built payments solutions for small and medium sized businesses primarily in the Retail, Hospitality and Health sectors.
The Australian merchant-acquiring market is dominated by the big four banks (around 74% of terminals in FY21), with
On this basis, the analyst estimates
Scalability and operating leverage
Many global payments peers demonstrate scalability, with a median earnings (EBITDA) margin of around 40%. Hence
The broker anticipates Payments sector margins in A&NZ will moderate over time due to competition and a change in business mix. Under these circumstances, it's considered vital the company's merchant loan product gains traction for the longer-term benefit of larger, stickier merchants.
The analyst estimates that 5% growth per year in merchant loan originations through to FY26 will add around 50bpts to the projected 11.7% margin for that financial year.
Overall,
Following first half results, Morgans also expects leverage to emerge over time and noted the company could support growth with
However, Macquarie is more sceptical, and suggested the result raised questions around the ability to generate operating leverage in the competitive payments industry, given limited pricing power and elevated demand for technology staff.
Despite holding this view, the broker upgraded its rating to Outperform from Neutral, believing the negative share price reaction to the result was overdone.
Tailwinds for market share
The company is set to benefit from growth in its ecommerce offering and penetration into new verticals, explains the broker. Moreover, the new Go Reader offering should assist, along with further partnerships and a general trend toward cards from cash.
Looking forward
Following first half results, Morgans believed any solid margin improvement will have to wait until FY23. It was felt support for merchants on pricing will likely continue until at least the fourth quarter of FY22, and expenses associated with the 2021 Medipass Solutions acquisition (
Nonetheless, a trading update in the first week of March showed a February rebound in transaction value from a typically weak January, noted to
The monthly transaction value was
The broker expects transaction value will continue to gain on the back of improving retail and hospitality conditions as concerns over the omicron variant subside.
Wilsons, not one of the seven brokers updated daily in the FNArena database, is conscious that any positive share price momentum may be difficult should the company face ASX200 removal in June's ASX rebalance.
The broker maintained its Overweight rating after first half results though lowered its target price to
FNArena is proud about its track record and past achievements: Ten Years On
All material published by
© 2022 Acquisdata Pty Ltd., source