Analyst Comment on Equals Group
Creating long-term shareholder value at fintech stocks is all about rapidly scaling operations on a largely fixed cost base.
On this score,(EQLS )’ “land & expand” strategy is working a treat.
You see having built a best-in-class, banking grade B2B international epayments platform. The firm is now attracting an increasing number of large corporates & white label affiliates, who also wish to enjoy the same efficiency, time & cost advantages as Equals’ traditional SME clients.
Indeed today the company reported LFL turnover up an incredible 85% to £22.0m (£11.9m LY) for YTD’22 - representing an average of £241k per business day (+86% from £129k).
What’s more the growth appears to have accelerated over the past 7 weeks - given sales were £13.6m (+68% YoY) or £222k/day (+78% £125k) between 1st Jan’22 to 28th Mar'22.
Meaning that from 29th March to 15th May, revenues must have hit £8.4m, or an est £280k/day (see charts).
Plus hypothetically - assuming this daily rate was maintained for the rest of the year - then it would theoretically deliver another est £42.8m of turnover - or £64.8m in total for FY’22. And that’s excluding any possible further boost from overseas travel (re FairFX), as the holiday season fully kicks off in the summer.
Sure in the short term, headline gross margins will naturally soften (Est <50% vs 54.5% LY). Importantly though this simply reflects product mix (re Equals Connect & Solutions currency), NOT PRICING. Where larger deals generate tighter spreads, but also have minimum incremental overheads.
In turn building critical mass, platform liquidity, barriers to entry & greater EBITDA in absolute terms.
So putting all this together, what’s the financial impact?
Well the good news is, I’ve upgraded my FY22 sales & EBITDA forecasts to £62.0m (+8% from £57.4m B4, or 40% YoY) & £9.7m (+15%, £8.4m) respectively - despite absorbing around £2m of extra investment (re S&M, tech, headcount, etc).
Similarly lifting the valuation to 138p/share (130p B4) – equivalent to potentially 68% upside vs 82p currently.
In fact my estimates could even prove conservative, particularly if the Board manages to maintain the momentum, consumer travel returns (6% group T/O - re overseas holidays) & EQLS ultimately becomes one of the few ‘go-to challenger platforms’ for all things’ B2B forex & international payments’ related.
Elsewhere, I understand there are also plans to lift the % GMs on these bigger clients, via a combination of up-selling higher margin services & further reducing unit costs, as the platform scales.
CEO Ian Strafford-Taylor adding: “We continue to monitor global macro-economic issues which increase uncertainty, but we have confidence that our revenue performance, offset with our investments in revenue-facing functions, will lead toAdjusted EBITDA being ahead of market expectations for FY-2022.”
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