Fonix Mobile delivered its maiden Interim Results this morning that revealed as per earlier indications, that all was going well and that it is trading comfortably in-line with current market forecasts.
The numbers announced reinforce my own view that this is not only a positive and well placed growth play, but one that is firmly committed to a progressive dividend policy, which makes for a further positive to the overall investment case. I was fortunate enough to attend the analyst and press briefing earlier today, which provides for some welcome additional insight into the story, although before penning my thoughts on that, it is worth just running over the numbers. This saw revenue for the period increase by 25% to £24.6m with gross profit up 22% to £5.8m and where gross margin as a percentage of TPV moved slightly upwards to 4.7% from 4.6%.
The first half EBITDA number delivered an impressive 28% increase, whilst adjusted EPS registered a 24% rise to 3.6p. A maiden dividend of 1.7p has also been announced and according to broker FinnCap, Fonix is well on track for a 5.1p total for the full year.
This is expected to be easily covered from free cash flow and although for now the broker is sticking with the current full year forecast, they do look conservative, particularly given today’s results which suggests that any upgrade which looks quite possible, could also see the dividend number increased.
Having only recently spoken with the CEO (posted on here), it was good to be included on the call today where there was further depth and colour from CEO Rob Weisz.
Within the presentation the CEO says that he sees a huge runway on where they can take the business and that he remains both optimistic and confident on the future, which now includes exciting international expansion. Regarding the latter, Weisz said that they have a handful of existing customers with whom they are looking to go live in a specific region of Europe.
This, he added, is a good market with good operators and implementation has already taken place and they have a positive line of sight. “We are really excited about this opportunity and expect to go live in the coming months although with the ongoing pandemic issues it is difficult to be totally specific.” Despite the pandemic which has afflicted many businesses, Fonix has clearly faired well and the CEO stressed that during the period they had seen 21 new business clients won, across core sectors with additions such as MIND and Dugout added to the portfolio and they are only at the beginning of that journey now.
Following on from a highly successful November driven by the Children in Need campaign, Weisz said that December had gone really well, being a record month.
The strategy as outlined in previous years continues he says, with the focus being on driving growth and continuing on the progressive dividend path.
Working within the confines as a result of the pandemic, the CEO said that the road map had remained on track with successful remote working and the business is underpinned by a robust technology that supports major names that are seeing high volume and high profile campaigns.
“We have seen our existing business really grow over the last six months and we are hoping to see that continue to grow over the rest of the year”.
Importantly for the business and continuing a long running trend there has been no client churn in the period which highlights the underlying strength of the offering. The CFO Rupert Horner said that they were pleased with these results and that all the financial metrics had moved in the right direction.
In terms of costs to Fonix, this is primarily payroll driven which spans development and marketing and this increased by 3% as the company expands on its growth roadmap.
The positive EBITDA performance was also highlighted where the business benefits from operational gearing and this should bode well for the company moving forward, particularly as it expands its footprint.
The core mobile payments segment of the business which makes up the lion’s share has grown most quickly and this represents charges made to consumers on behalf of the merchants, where in terms of margins, the CFO adds that these fluctuate month on month depending on the mix of business at any given time. Regarding cash, this also varies given what they are holding in any period before that subsequently passes on. Importantly, Horner says that they keep a very firm eye and focus on their own underlying cash/ profit which they hold on their own account and this is demonstrating a continued strong generation. Recapping on the ongoing strategy, Weisz adds that Fonix will press on with this by taking their offering and services into core sectors where they see a demonstrable opportunity ahead across each one.
“If you look at what is going on across TV, media including print and major radio, the engagement is vast and we see a huge opportunity. And If you look at sport such as boxing and F1, or media with the FT or the Guardian they are all looking for payments, often one off transactions and carrier billing provides a big opportunity for us to address these needs”. With Charities having been hit in specific areas due to the pandemic, digital donations have seen demand. Weisz refers to involvement for Fonix during the period with the Elton John Foundation and MIND and he sees further opportunities in this space for the company ahead, which will also work positively for the charity. Gaming is also another area that also sits well, which he describes as being low tariff, low touch such as a lottery or bingo with payments in the single figures and they continue to focus on these areas too. From an investment perspective with growth as a key attraction Weisz expands on clients enquiring as to whether services provided in the UK could be extended abroad. “We have a number of our clients in different areas who are constantly asking us if we could provide something for them in another region where they are active, so we are looking at that.” Such a potential path in addition to the UK revenue stream could really open up for the business moving forward where the CEO says that it is a real positive, as growth opportunities such as those are actually client led.
In relation to the UK market, Weisz believes that they can now make in-roads across new sectors and have already demonstrated an ability to handle huge payment volumes such as with Children in Need and which currently sees them gearing up for the forthcoming Comic Relief.
Broker FinnCap has retained a £2.00p price target along with expectations of full year revenue of £45.1m with EBITDA at £8.6m and adjusted pre-tax profits of £8.2m with EPS at 6.8p. At the current price of £1.55p the shares trade on a PER of 22, although as mentioned earlier the numbers do look conservative, so there is continuing potential for an upgrade ahead of the full year numbers.
Importantly, with 21 new customers signed up and no churn, plus a new International revenue stream looking set to flow through, the shares are well worth my holding onto for the longer term or even at these levels arguably adding and averaging up.