It has been a while since I last touched on Bango (BGO) here, after the company seriously blotted its copybook a year ago.
That saw the company delivering a big miss on market expectations, which in turn saw the shares effectively dropping off a cliff, leading to a large loss of private investor confidence.
To date, it has been one of my less successful investments, although I continue to believe that there is considerable upside potential from the current levels, providing the company can deliver on the apparent promise.
As I write, the shares have moved further ahead of previous lows, up 7.5p to £1.15p this morning, following a much more pleasing Trading Update to the market.
On the back of that, I have once again caught up with CEO Paul Larbey, along with an introduction to the newly appointed CFO Matt Wilson, in order to hear more on the current prospects.
Following the update today, the company, according to broker Singer, is on track to deliver revenues of $53.4m with adj EBITDA of greater than $15.2m and adj PBT of $3.1m.
While revenue is on track, EBITDA and profit are slightly short of the earlier forecasts, but nevertheless demonstrate a more positive picture with growth achieved along with important and key solid cash generation.
In the statement, there were a number of aspects worth expanding upon, so I commenced by asking Larbey about the previous Docomo Digital acquisition, where at times, it has appeared to be a protracted situation.
Commenting, the CEO said that they have done and concluded all of the financial synergies that they said they would and apart from a couple of minor aspects to round off, it is very much a completed process now.
On the wider business front itself and performance, I was keen, like others, to hear more on the DCB aspect, particularly on margins and to this end Larbey expanded for me.
Across the Direct Carrier Billing business it performed well growing by 11% (14% in constant currency) which is above the mid single digit range previously indicated and in terms of margins, Larbey said that they expected to continue at the current levels.
But here are some lower margin connections related to the Docomo Digital acquisition that have been integrated and are obviously included in the numbers.
As a result, this equated to a higher level of overall costs related to those routes, which in turn impacted margins in certain regions.
These included the Asia Pacific and Middle East, Larbey added that at the time of the acquisition they were pretty small but have grown rapidly since.
Going forward, the CEO speaks of ongoing growth in the DCB aspect of the business and in terms of mid-single digit per-centage levels confidently being achieved and delivered.
It is also worth adding at this juncture that BGO is exposed to the Japanese Yen which has been a negative factor and although Larbey said it would at some point reverse to a positive, he does acknowledge that this is something they have been saying for some time now.
Of course, on the operational side of things the real excitement and the growth driver for the company is the DVM subscription-bundling aspect of the business whereby the company is ideally placed to build on the foundations that have been laid.
The revenue here grew impressively up to $17.2m representing a 28% increase, as recurring license fees marked significant progress.
In this space, BGO has three of the top five Telcos in the US as customers, but Larbey said that they hope to have at least one more of those signed up over the next 12 to 18 months.
Alongside those major players though he told me there are a whole host of others in the sector that operate in various regions and who also have impressive numbers in terms of subscribers.
Although not in the top 5, the CEO stressed that it didn’t follow that they weren’t big, particularly given the vastness of the US and the customer base.
They have recently signed up two of these Tier 2 customers and it's an area that he is expecting to see further growth, which also provides for further strong customer retention.
Although the US is a key focus and is already delivering impressively on the growth front, BGO is, Larbey added, seeing good growth in Latin America. The company has already built a good healthy pipeline and that continues to grow and offer further opportunities moving forwards.
In the case of Europe, whilst it has always been a market that he said has proven a little disappointing, they have more recently seen what he describes as green shoots emerging there with a more positive trend and the hope is to see further deals come through in the region.
Asia also features for DVM too, where BGO has already marked a presence in Australia, with 2 additional deals in 2024 and Larbey added that they are starting to see deals come through there. “Once you get one or two, like we saw in the US, you start to see some momentum” he added.
Other than the Telco market, the company is also making progress across the retail aspect as evidenced by a win with a major Portuguese High Street player, Continente.
This is an area that is also ripe for growth and importantly, Larbey stressed that the Portuguese deal was concluded and subsequently launched in less than 12 weeks, which is an impressive turnaround.
There are also, he said, opportunities across financial services which they see as the next step and there has been a lot of interest already in this sphere and they view that as the next big market following on from Telcos.
One element away from customers that I was keen to return to though was the cash position, where although debt is reducing, the balance sheet has left me wondering whether another equity raise could yet be required.
Larbey firmly dismissed the notion as he commented, “our cash position is improving and is much improved over the last year and we also have the Barclays facility we can use if we chose to. So, we have that safety net and certainly have no intention of going back to the market at the current share price for working capital.”
That should provide for further reassurance to investors, who understandably may be nervous about the prospect of further dilution.
Looking ahead to next year there are now two analysts covering the stock, with Canaccord having just initiated coverage to join house broker Singer.
In terms of the Singer numbers, Larbey concurred with me that these do look conservative and they are targeting to be above those although they clearly don’t wish to be aggressive in numbers where any derailment can impact.
That looks wise, particularly in light of last year’s issues around the missing of what some deemed as aggressive forecasts.
One point that will no doubt catch the eye of others following the stock, will be the apparent reduction by Singer in the adj PBT expectation for full year 2025 to $1.5m, despite an increase in revenue to $60.1m.
Indeed, whilst EBITDA moves forward to a forecast $17.1m, the decrease in the adjusted PBT, the new CFO informed me, is largely driven by the amortisation profile in that year, as DVM investment begins to generate revenue.
Taking a look at Canaccord, it appears that a differing profile has been applied, especially in relation to the amortisation and exceptional costs, where having issued an extensive and interesting note, it is by contrast looking for adj PBT of $3.3m increasing to $6.7m in 2026.
Although such apparent accounting differences on numbers may sow the seeds of confusion, the bottom line will no doubt be all down to delivery and evidence of increasing strong cash generation and growth.
Canaccord certainly sets out a strong investment case for BGO today and with a price target of £2.44p the extract below is perhaps worthy of a read.
Particularly for those more recently attracted to or considering an investment in the company.
“Direct Carrier Billing (‘DCB’) is an alternative payment method to cash or card-based payments and accounted for 68% of Bango’s H1’24 revenue. DCB allows users to make purchases by charging payments to their mobile phone carrier bill. The global adoption of mobile phones and increasing ubiquity of internet-connected devices has enabled the rise of DCB as a convenient and secure alternative for mobile users to traditional payment methods such as credit/ debit cards or e-wallets.
There is an estimated c.15bn mobile devices worldwide, all a potential point of sale solution through Bango’s mobile billing and payment solutions that connects merchants (those selling goods or services, e.g. an app in Google Play Store) with mobile network operators (the company that has sold the internet-connectivity of the mobile device) enabling the end consumer to transact.
A significant advantage of DCB is that it does not require a payment card or bank account to complete a transaction. DCB is particularly popular among young people and those without access to traditional payment methods. Research by McKinsey suggests that roughly half of the global population is ‘unbanked’ and does not use a bank or microfinance institution. Bango is currently one of two scale players within DCB following the acquisition of DOCOMO Digital in September 2022. The other major competitor is Boku, who acquired Fortumo in June 2020. Bango last reported an exit End User Spend (ex-taxes) run rate of $8.6bn per year in FY22 vs Boku’s TPV (inc. taxes) of $10.5bn in FY23.
Bango generates DCB revenue by connecting mobile network operators (and the underlying end user, i.e. the consumer) and merchants (those providing the service to the Bango payments platform). DCB revenues are volume-based with Bango charging a percentage of the transaction value.”
From a personal level I am hoping for further news flow to emerge in due course, where more should become apparent in the next update, which will be the full year 2024 results.
Comments