Fonix Mobile announced its final results for the full year ended 30th June 2021 last week, which confirmed that the business remains well on track for ongoing growth and further momentum with its progressive dividend policy. From a personal perspective I have been invested with Fonix since soon after the IPO and as mentioned in my last piece here, I subsequently added at £1.28p, so thus far I have enjoyed decent gains. Following the results though, the shares are off a few pence today at a current £1.47p which sees the stock trading at a discount to others in the sector, perhaps providing for an opportunity for those watching investors sitting on the fence, to climb on board.
For some that are perhaps unfamiliar with the business; the company headed by Rob Weisz is very much concentrated on the carrier billing space with its own cloud based platform providing mobile payments from various and extensive consumers.
The business is, and has been, UK focused with sectors served including entertainment, media and telecoms where it has connections established with all UK mobile networks, whilst it boasts major blue chip clients.
Having delivered impressive numbers, I have once more been fortunate enough to catch up with Rob Weisz in order to glean a little more on the performance and the prospects ahead.
Firstly though, a quick run over the figures, which underpin the investment case and underlines the combination of both growth and progressive income attractions via its stated dividend policy. Full year revenue increased to £47.7m from a previous £40m which in turn delivered EBITDA of £8.8m and adjusted pre-tax profit of £8.3m with EPS of 6.9p. Looking ahead, broker FinnCap has pencilled in what appear to be conservative numbers for the full year 2022 with revenue at £51.4m and adjusted pre-tax profit of £9.1m, which sees EPS move to 7.6p. There is net cash on the balance sheet, where Fonix is delivering on excellent cash generation enabling what is an attractive dividend to be paid, which importantly is comfortably covered. The full year 2021 total dividend payment comes out at 5.2p per share and this is forecast to increase to 5.7p for 2022, rising to 6.3p in the following year. As already mentioned, Fonix has carved out an enviable position in its market across the UK which has a high barrier to entry and this has been and is, serving it well. However, aspirations for growth extend beyond these shores and the company has already embarked on fueling its growth story by moving into new territories such as Europe which will drive the total payment volume. (TPV). Speaking with Rob Weisz, the CEO expands on this area, “sometimes the key to our business is not just down to the signing of contracts, but the integrations that follow and where the nub of it is the actual transactions that come through”. The timing of the latter is largely out of Fonix’s control though and dictates when the all important revenue begins to flow. It does however seem that the company is very much on the road to expansion as Weisz continues, “we have signed a couple of contracts in Austria with two different customers and two different sectors”. In relation to that domain, the CEO says that both had been looking at Austria and as Fonix operates on a client led approach it was very much able to respond. Investors absorbing the news may wonder as to why Austria, which isn’t a highly populous country, begging the question as to the pathway to sizeable revenue. To this end, Fonix carries out its own diligence, as Weisz explains, “we look at how mature the market is in terms of carrier billing where some are far more advanced than others.
Also, critically is there a good regulatory framework there, ie, is there a chance that in two or three years something could happen to cause them to shut down”. The CEO adds that Austria ticks the boxes in that there is good regulation and mobile operators with a decent supply chain for them to concentrate on along with what are two good sized customers. He also sees it as a positive springboard into neighbouring markets as Austria runs in a similar vein to others in Europe, so he sees it as a very exciting opportunity.
Reiterating that it will be client led, he adds that they are now having one or two discussions with other parties, which although at present is early doors, could also prove very beneficial going forward.
In the results release, there was also mention of a new partnership with a leading tech provider which would appear to provide further confidence in the company to win new business. Weisz says that at present they aren’t in a position to expand in great detail or name the other party, but he adds that this particular partnership is a big one in the sector that they are looking at and it will give them access to some larger markets. “We are in the process of doing a couple of deals on the back of that integration which is fantastic and as our pipeline of prospects grows, we can very much go after more”. Aside that news, which has only happened over the last couple of months, Fonix has also done a deal with Venntro a big infrastructure business concentrated on a dating platform which provides over 2,500 sites across the UK. Weisz very much sees the former as an example of its land and expand process and he is looking forward to growth not merely in the UK but Internationally too. Speaking of the business in question, Weisz says that it is in a few international markets where they are seeing some great results from carrier billing which they have announced already, relating to conversions on subscriptions. “So, we would like to work with them over the course of the next couple of years to see how we can fill carrier billing in other key markets that may be good for them”. Despite only coming to market last year, Fonix is already demonstrating a continuation of its ability to deliver and thus far the story is not only intact, but on its way to what could prove to be an extensive runway. Of course, investors invariably and correctly look to risks of any such business and it is something that Weisz and his team are well aware of and would seem to monitor.
In this area the CEO says that potential regulatory changes are something they keep an eye on, but the backdrop continues to be a favourable one. The market is continuing to mature and ever more transactions appear to be taking place via the likes of carrier billing, perhaps accelerated in part by the events of the last year. Competition wise, Fonix would also seem to be in a decent spot where Weisz says that they haven’t come across Bango in the UK, whilst Boku has only crossed their path on a couple of occasions. Interestingly, the two aforementioned enjoy greater and more punchier ratings than Fonix, their businesses being focused in different areas with a major focus on app stores. The big difference Weisz says is that Bango and Boku have lots of international telecom businesses that they are rolling out for the likes of Apple and Google etc.
The two big names then tend to speak with the carrier/mobile operator before going back to the carrier billing player and negotiating a price. The positive side for Bango and Boku is that they are able to see a long tunnel of revenue numbers, although on the flip side, the margins can be very, very small. Fonix is effectively targeting the next tier down says Weisz, where they have done deals separately with the mobile operators and then the merchants, with major well known names such as ITV or Global.
It’s a strategy that has been working well for Fonix with next to nothing in terms of churn with impressive client retention leading to expansion and growth to boot. There is, Weisz acknowledges, some variation from period to period in its margins achieved, which are largely dictated by the product mix at any given time, but overall these remain healthy.
All in all, few can surely argue with the results that looked good, along with the prospects ahead which appear to be sound, driven by continued strong cash generation and where European expansion is also now very much in play.