Cornerstone FS (Finseta) doubles revenues, achieves maiden profitability in FY23
One of best ways to generate 'Alpha' is to invest in attractively priced stocks that are winning market share and have attractive unit economics. International payments platform (soon to be renamed Finseta) fits the bill.
In fact, in today’s 'barn-storming' results, the company said that FY23 revenues had doubled LFL to £9.6m (vs £4.8m LY), along with delivering EBITDA of £1.7m (vs -£0.9m 2022), 2.20p adjusted EPS (-3.65p) and £2.0m (-£1.0m) of operating cashflow. Net funds closed Dec'23 at £0.1m (post £2.2m of non-convertible 6% loan notes) vs -£0.8m in June, reflecting strong 115% cash conversion.
Sequentially, the direction of travel on charts is higher and to the right, with H2'24 turnover, gross margins and EBITDA climbing to £6.0m, 64.8% and £1.5m (25.0% margin) respectively, compared to £3.6m, 61.0% and £0.2m (5.5%) in H1.
So what's driven this step-change in performance?
Well, since taking the helm in Sept'22, CEO James Hickman has transformed from a purely 'white labelled' forex IT system into a rapidly expanding international payments group (90% spot rates vs 10% forward contracts) that serves SMEs and HNW individuals with tailored 'white glove' services. This strategic shift has not only attracted more clients (+13% to 906 vs 803 LY) and generated higher average transaction values (+33% YoY), but also improved cross-selling and client engagement (ARPU +77% YoY) after the successful upskilling and broadening of both the sales team and range of currency pairs offered.
Elsewhere, adjusted fixed costs and commissions have been tightly controlled as well (+16% YoY to £4.4m vs revs up +100%), which alongside economies of scale and improved mix, has helped generate positive operating leverage and estimated 30%+ underlying EBITDA drop-through rates.
This is just the start though. By combining overseas expansion (eg Canada, UAE and Hong Kong), continued market share gains, new product launches (eg credit/debit cards and Finseta Solutions) and M&A, I understand the Board’s ultimate goal is to build a £100m+ turnover group.
If I'm right, then in 3-5 years ' Mrkcap should be many multiples higher than the current £23m valuation (at 40p). How much higher is anyone's guess, albeit prior to this morning's numbers, house broker Shore Capital had a target price of 50p*/share, based on modest 2024 estimates of £1.8m in adjusted EBITDA (+6%) on revenues up 18% to £11.3m.
CEO James Hickman commenting: "This has been an excellent year, resulting in 100% revenue growth and our maiden full year of profitability and positive cashflow. Looking ahead, the strong trading momentum that was experienced during 2023 has been sustained into the current year and we are on track to report significant growth for full year 2024, in line with the Board's expectations."
I suspect the Board’s expectations (albeit this needs to be confirmed) are slightly above consensus.
*Update: Shore Capital have just lifted their target price to 70p/share (vs 50p before), alongside nudging up their FY24 revenue and EBITDA estimates to £11.5m and £1.9m respectively.
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