FONIX - MORE THAN THE QUIET COMPOUNDER - 24/07/26

Back in March, I revisited Fonix (FNX) here on the blog, which at the then £1.55p I considered to represent very good value.

To support that piece, I was fortunate enough to catch up again with CEO and co-founder Rob Weisz, who has been instrumental in guiding the business on its chosen path.

I won’t recap the nature of the business as that has already been discussed in the prior article, but suffice to say, a Trading Update released yesterday makes for positive reading.

Gross profit increased by 13% to £21m on forecast revenue of £80.6m, with adjusted EBITDA growing 11% to £16.2m, which should provide for adjusted PBT of £15.2m.

Importantly, those numbers were accompanied by a positive forward outlook as the company continues to extend its footprint beyond the UK, with Europe now presenting notable growth opportunities.

Somewhat frustratingly, the shares have been subdued of late, trading around the £1.55p level, which appears anomalous to me, given the quality and performance of the business.

That said, the update, which reinforced both the strategy and prospects, has resulted in the shares moving up to £1.70p, although that still looks to be well in value territory.

Long standing investors will already be familiar with the dynamics here, which sees the company operating as a highly successful cash generative asset light business in the carrier billing space.

The key attraction lies within a software platform that enjoys high industry margins, with little in the way of churn and relative ease of scalability.

Of course, like any business there is a degree of risk and, in Fonix’s case, that effectively lies in keeping abreast of any potential regulatory changes across its existing markets.

Additionally, as it expands, there is a clear need to navigate each territory’s own regulatory structures and areas of compliance to mitigate any potential downside.

Whilst those are aspects that certainly need to be factored into any investment decision, the high barrier to entry and the stickiness of its services make for strong endorsements.

In order to hear more on those areas, along with the expanding footprint, I have this time round been fortunate to catch up with CFO and COO Michael Foulkes.

He kicked off by saying that management had been really pleased with the performance over the last eighteen months or so, which included the expansion into new territories.

This includes a strong performance in Ireland, which has been a core stepping stone for broader international growth, followed by expansion into Portugal and Switzerland.

Additionally, Fonix is now embracing a hugely significant market opportunity in France.

Whilst all of the new regions being targeted offer expansion and growth opportunities, France in particular looks to be a major step for the business, especially given the size of the market.

Michael was happy to provide some additional colour.

“We had actually been looking at France for about three years, but we were surprised that it wasn’t performing better given its size.

Given how the UK performs and that France has been running just as long, we really wanted to understand more.”

The result was that the team undertook an extensive and rigorous exercise before entering the market in order to understand just what was holding it back.

“We looked at all the various regulations to best understand why the market hadn’t evolved in the same way as the UK.”

The conclusion was that the market hadn’t moved forwards in the same mould as the UK, due in part to regulation, but also because of the lack of technology adoption.

Importantly, France is what Michael describes as a competitive market with a couple of big players, but it is one that has lacked investment in leveraging the offering.

He added that the customers they are speaking to are genuinely excited by what Fonix can offer and can see the opportunity is now there to do things differently.

Fonix already has strong customer validation and satisfaction and Michael added that they feel they are entering the market with a really strong message.

Not surprisingly, there has been a great deal of regulation to navigate, along with investment, but there is now real scope for upside.

“In terms of payback in France, we expect it to start delivering at the back end of the current financial year.

We feel we have made all the right decisions and while that market may be under-delivering, there are a lot of customers operating in the space, with ten plus broadcasters.”

That compares very well with the UK, highlighting a more fragmented market, which provides potentially significant opportunities.

In terms of the other markets at the heart of its expanding footprint, Michael said the team takes an in-depth look at the functionality of each country.

“It is critical to us that the regulatory framework is well defined and we don’t like to go into markets where there are areas of grey.”

This sees management undertaking a lengthy process of scoping out the destinations it wishes to enter, with a clear understanding of the regulatory framework.

Within that, there is a specific emphasis on media broadcasters and the Fonix team uses a leading law firm that specialises in the area across Europe.

Aside from the exciting development in France, a fifth as yet unnamed overseas European market is also targeted to go live towards the end of the current financial year.

With visibility increasing and now expanding throughout Europe, a key takeaway for me is that management spent three years understanding why the French market had lagged before committing capital.

That further underlines the highly disciplined and measured approach of the team, which has thus far stood them and investors in very good stead.

Perhaps best described as a quiet compounder, driven by organic growth it is arguably understandable why some investors have passed Fonix over.

Any suggestion that this is a boring business though  really isn’t a fair labeling in my view, as the team has been and is actively developing and rolling out new platforms.

These assist in diversifying the product suite beyond its core roots where PayFlex is a prime example of ongoing innovation and expansion.

This platform provides a payment orchestration facilitation process which allows enterprise clients to manage, route, and optimise diverse payment methods from a single interface.

That enables media companies and charities to move beyond mobile carrier billing alone, blending traditional credit cards, digital wallets, and mobile operator payments smoothly.

Additionally, the company launched an online competition platform with a first customer last December in the form of ComsPortal, which is specifically tailored for broadcasters and media operators.

Already an award winner, it enables those clients to create, manage and monetise free and paid for competitions with integrated payments through a single branded portal.

Despite ongoing investment, Fonix maintains a significant net cash position and boasts an enviable track record on dividend payments.

That does however, raise the question as to whether acquisitions may also form part of the growth strategy, to complement the existing organic runway.

“We have always said we would look at anything, if it is the right business for us and we have actually looked at several things,” said Micheal.

Going further, he added that historically, Fonix has been focused in a fairly narrow and highly regulated range and that they haven’t wanted to stray out of that.

The result is that there are realistically limited opportunities that tick all of the boxes for the team to actively pursue, although the door isn’t shut.

Looking ahead to the full year 2027 numbers, broker Cavendish is now forecasting revenue of £86.8m with adjusted EBITDA of £17.6m and adjusted PBT at £16.1m.

That would provide for adjusted EPS of 12.4p giving a PER of below 14 that is backed up by a forecast total dividend of 10p.

Yet, despite delivering another year of double-digit profit growth, the shares  trading on less than 14x those forward earnings and yielding close to 6% look increasingly attractive..

Overall, I continue to view Fonix as one of the more overlooked quality growth companies on AIM.

Management has clearly demonstrated a disciplined approach to expansion, refusing to chase growth for growth’s sake and instead entering new markets only after fully understanding the regulatory landscape and commercial opportunity. 

That philosophy has served shareholders well to date.

With France now representing a potentially meaningful new growth driver, further European expansion underway and product innovation broadening the addressable market, there appears to be a clear runway for continued organic growth.

Importantly, that growth is supported by an asset-light, cash-generative business model that continues to fund both investment and the attractive dividend.