FONIX MOBILE: BUILDING A SCALABLE PAYMENTS ENGINE BENEATH THE SURFACE - 20/03/26

Most recently, I revisited Calnex Solutions here on the blog, highlighting what I saw as an interesting recovery play.

Continuing in that vein, I am turning back to Fonix Mobile - a business I first backed shortly after its IPO and one that, to my eye, once again looks compelling value.

During that earlier period, I spoke on several occasions with CEO and co-founder Rob Weisz, gaining valuable insight into his long-term vision for the business.

While some time has passed since we last caught up, I recently had the opportunity to reconnect with him - a timely discussion given both the recent performance and current share price.

For those unfamiliar, Fonix operates in the mobile payments and messaging space, enabling consumers to pay for services directly via their mobile phone bill or SMS. It is a market with high barriers to entry, and one where the company has established itself as a trusted partner to major media groups and high-profile charities - effectively acting as a bridge between businesses and consumers.

Its high-profile SMS interactivity includes the likes of BBC Children in Need, Comic Relief (Red Nose Day), Dancing On Ice, Love Island, and I’m a Celebrity, amongst others.

Since coming to market, Fonix has delivered consistent growth, strong profitability, and a progressive dividend.

Alongside this, it has quietly executed on its chosen strategy to expand across Europe - a key pillar of the growth story that was outlined in earlier conversations with the CEO.

However, beyond the headline numbers, the more interesting story here lies in how the business actually operates - and how that operational complexity translates into a durable competitive advantage.

With that in mind, I caught up with Rob again shortly after the latest interim results in order to hear more on the mechanics of the business today.

“The key thing for us,” he said, “is that our core clients are TV, radio and major charities. They have large audiences - essentially broadcast customers - and the operators want an effective way of engaging with them.”

The engagement Rob refers to is driven primarily through the aforementioned SMS, where Fonix is directly integrated with telecom operators.

Combined with carrier billing and adjacent payment solutions - such as online paywalls for sports or gaming - this places the company in a particularly attractive position within the wider payments landscape.

The results speak for themselves. Customer retention remains extremely high, reinforcing Fonix’s position within its niche and providing ongoing growth opportunities.

At the centre of every transaction explained Rob, is the mobile number.

This enables payments that are secure, frictionless and, importantly, allows for immediate follow-up - whether that is for confirmations, alerts, or further engagement.

In effect, Fonix is not simply facilitating payments. It is enabling an ongoing connection between businesses and consumers - and it is this engine that turns operational complexity into a tangible advantage.

A key part of that engine is the company’s proprietary campaign software, which is provided to clients and allows them to cross-sell and upsell through targeted messaging - deepening engagement over time.

“In the markets we operate in,” Rob noted, “we’ve carved out a strong position. Others tend to focus on app store billing or bundled payments - that’s not where we play.”

Given this positioning, Fonix is not only processing transactions at scale, but also sitting on a significant volume of user interaction data.

Rob was understandably measured in how he described this, but the underlying mechanics are clear and meaningful.

When clients engage with millions of users over time, Fonix’s platform captures that interaction data on their behalf.

Those clients can then use the company’s tools to build user profiles and better understand behaviour.

“Our tools allow clients to profile users and send more targeted messages,” he said, “and that ultimately drives higher engagement and revenue.”

Over time, this creates a feedback loop - where better data leads to improved targeting, which in turn drives further engagement.

In areas such as competitions and media, this becomes increasingly powerful as the dataset compounds.

While the UK remains a mature core market, the company has been steadily expanding into Europe, where it is now seeing meaningful traction.

This is not a new direction, though. European expansion has long been part of the strategy, and it was something Rob highlighted in our earliest conversations.

What stands out here, and highlights the efficiency of the business, is the way in which that expansion is being executed.

“It’s important to remember we’re not a huge business,” Rob said, “but our technology is highly scalable and transportable.

A large proportion of our team is focused on tech, which allows us to expand without significant overhead.”

The model is notably capital-light, which resonates from an investment perspective.

In Ireland, for example, the company was able to build out operations largely from the UK, supported by a local presence.

The same approach is now being applied in markets such as Portugal.

“We invest cautiously and organically,” Rob explained. “We’ll have a country lead managing relationships locally, but much of the operational support comes from the UK. As markets scale, we add resources in a measured way.”

This whole process is underpinned by a level of visibility that is relatively rare, translating into positive metrics on the numbers front.

With established client relationships and repeatable engagement models, Rob pointed out that much of the growth is both forecastable and predictable - a trend that has been in place for some time.

Aside from the push into Ireland, Fonix is now active in Portugal following a successful trial phase, and the plan is to accelerate into other territories.

“As we look at other markets in Europe,” Rob said, “exactly the same thing will happen.”

They are, he added, looking at countries such as France, while they have also completed another pilot in an unnamed European market.

Importantly, he noted the potential strategic importance of France, where they have been moving quickly to put in place a lead within that country.

In the right markets, Rob envisages growing teams more locally, but that does not result in capital-intensive spending.

Rather, Rob and the rest of the team are ultra cautious, and with the support of the UK operation, the strategy is to grow its markets organically.

“I think you will see over the course of the next three years Fonix employing the relevant people in the right markets as we grow the business.”

That would appear to be a strong indicator of where the business is heading and the potential for future scale.

Like any sector, nothing is plain sailing, and Rob points out that media players’ and broadcasters’ advertising revenues are challenged on a number of fronts.

That does, however, provide upside potential for Fonix as media players look for additional ways to monetise their content.

On that front, Rob said that they are currently talking with a couple of major sports owners, where competitions appear to be an attractive option.

The potential is obvious and compelling, where competitions offering tickets for a major match or other novel interactions are likely to prove highly engaging.

“We see that as a real opportunity,” Rob said, as those players actively explore alternative revenue streams.

Looking at Fonix’s performance since coming to market, it is hard not to be impressed.

Revenue has increased from the £40m achieved in 2020 to last year’s £72.8m, which has also seen adjusted PBT increase each year, coming out at £14.3m for full year 2025.

Dividends have also been progressive and have been supported by a special payment to shareholders.

The strategy is to pay 75% of adjusted EPS in dividends, which further highlights the income potential as a welcome complement to growth.

Of course, no matter how compelling such a model appears, it is always worth asking what could go wrong - and where the limits to this story might lie.

Although Fonix operates in a structurally attractive niche, it is not entirely self-contained. Its position does depend on external factors.

These largely come from the continued alignment between telecom operators, regulators, and key clients - a dynamic that, over time, could prove less predictable if certain aspects of its market were targeted in a negative way by regulators.

That said, Rob had told me in a previous conversation that they are very alert to potential industry changes, keeping a close eye on potential issues.

Additionally, the A2P SMS space in which it operates is already highly regulated, with stable and well-established frameworks.

There are instances though, where hurdles do manifest - the UK gambling changes being a case in point.

Rob was happy to provide some additional colour as to the likely impact on Fonix.

“It is actually quite straightforward, in that the doubling of gambling duty has definitely had an impact on the viability of a couple of our clients.”

He went on to say that the area amounted to around 6% of the company’s business, so although it is very unwelcome, it does not change the forecasts, and they have many other opportunities underway.

Aside from the regulatory aspect and the business functionality, AI is naturally another area I was keen to explore.

Could it negatively impact the business, or, on the flip side, provide further opportunities?

“We have embraced AI as much as you would expect us to, and it does cover a few things.”

The majority of Fonix’s business is about connecting to mobile operators, which are effectively closed systems, and Rob said that this, as far as he can see, will not be affected by AI.

As for their internal structure and operations, Fonix is already using AI.

This can assist with marketing and speed up functionality and will, Rob said, continue to evolve.

Looking ahead, given the large dataset Fonixholds, he believes it is well suited to AI-driven applications, and the team views this as a meaningful opportunity.

Focusing on Fonix’s half-year results, the performance appears very positive, and the company looks comfortably on track to deliver on full-year 2026 expectations.

Revenue of £42.3m for the period saw gross profit growth of 8% year-on-year to £10.5m, with adjusted EBITDA up 6% to £8.3m.

Adjusted PBT came in at £8m with adjusted EPS of 6.6p.

Strong consumer demand and robust growth in messaging volumes drove the numbers, supported by the Fonix PayFlex product.

PayFlex is a mobile-first payment recovery and checkout system used to complete transactions that fail via SMS billing.

This is an attractive addition, as it not only captures payments that would otherwise be missed, but also enhances Fonix’s offering to both existing and potentially new customers.

Looking further at the interim results, the expanding footprint appears to be paying off, with strong demand registered in Ireland and a positive initial performance from Portugal.

Broker Cavendish is forecasting full-year 2026 revenue of £80.6m, adjusted PBT of £15.2m, with adjusted EPS at 11.5p.

Those numbers are expected to move to £86.1m of revenue next year, with PBT at £15.9m and EPS of 12.1p.

Given the current share price of £1.55, the shares trade on a forward (2027) PER of under 13, which, given a chunky net cash position and an attractive dividend, looks compelling value to me.

One aspect worth noting is that Fonix holds cash throughout the year for clients, which, although negligible in the bigger picture, provides for some earned interest.

As expansion gathers pace and revenues continue to accelerate, this could become a more notable contributor going forward.

Overall, Fonix presents a combination that is relatively rare in small-cap equities: a capital-light, high-margin model with recurring revenue, strong client retention, and a clear path to geographic expansion.

The embedded nature of its platform within broadcasters and major media brands creates switching friction, while its position within the mobile operator ecosystems provides a durable structural advantage.

At the current valuation, the market appears to be pricing Fonix as a steady, niche operator rather than a growing, scalable payments platform with expanding international optionality.

With consistent earnings growth, a high dividend payout ratio, and additional upside from European expansion and product development such as PayFlex, the investment case rests on continued execution rather than structural reinvention.