FONIX THE GROWTH STORY GATHERS PACE - 25/09/26

Time for my return to Fonix, which has once again delivered impressively, with the full year 2026 numbers announced on Tuesday 24th September coming in ahead of forecasts.

In my previous coverage here, back in March and July, I highlighted what I saw as a quiet compounder, where the valuation provided an investment opportunity.

Since March, the shares have rallied from the then £1.55 to today’s £1.97, representing a 27% increase, although looking at how the business is positioned, further longer term upside could well follow.

Having spoken with both the CEO and CFO earlier in the year, I was pleased to have the opportunity to speak with CEO Rob Weisz once again in order to hear more on the direction and opportunities ahead.

Rob was understandably pleased with the outcome of the full year results, but as has become customary, with both him and the wider management, the response is pleasingly measured and conservative.

There is no hint of complacency here, rather a detailed and structured pathway to continued development and delivery, which is both welcome and refreshing.

Indeed, what is not to like at FNX, where gross profit increased 13% to £21m, adjusted EBITDA came in at £16.2m, which in turn delivered adjusted PBT of £15.5m.

Net cash, with an underlying figure of £9.4m, is also impressive, whilst there is also a decent dividend on offer that provides a nice addition to the growth offering.

Commenting specifically on the results, Rob said that they were pleased with the outcome, which came on the back of a previous year that saw a lot of investment being deployed.

Having historically been a pure UK focused operation, FNX has subsequently and successfully increased its footprint for international expansion.

And the international opportunity is becoming increasingly difficult to ignore, given the company now operates across five markets outside the UK, with a sixth country apparently waiting in the wings.

While the identity of that market remains under wraps, the potential addressable market is clearly expanding well beyond the company’s established UK base.

That should provide both near term and, importantly, longer term growth and increased profits, although the question is where the largest opportunity is likely to emerge.

Rob said: “They all have their own DNA, but I guess the key thing to consider is the population of each market.

“So, from our perspective, Switzerland has got nine and a half million people and as they haven’t run this sort of thing before, we are slowly educating them and maximising what they want to get out of it.

“But then we look at France, it has roughly the same population as the UK, similar GDP and there is a similar regulatory system in place.”

This latter reference, arguably suggests there could be considerable upside potential in a territory that clearly lends itself to what FNX has to offer.

That said, Rob pointed out that there is lots to do compared to the far more established and mature UK market.

In France, Rob added that there are regulatory processes in place, but that suppliers haven’t really looked closely within that and how to evolve the market.

On that basis, it is a country that absolutely makes sense for FNX to be active in and Rob said that he sees real opportunities ahead as they push on with the build out phase.

The management team estimates that the French market for paid interactive services is around €100m of consumer spend, representing roughly a €5m gross profit opportunity for Fonix.

Having successfully established itself in both Ireland and Portugal, Rob said that their conversations with four Telcos and various broadcasters to date in France have been really welcomed.

“Obviously with Ireland, there was the common language and a lot of crossovers, so it was pretty straightforward and Portugal probably took a little longer than we first thought.”

Rob added that they see Portugal as providing opportunities going forwards to make a material contribution to the business and there are two other major TV companies and a big radio group that they are currently engaged with.

Beyond the territories already mentioned though, it is clear that there is a roadmap for further expansion as Rob explained.

“We always start out by looking at regulations and whether you can do it within a regulatory perspective and we think you can run these services in four or five other countries across Europe.”

These include the likes of Spain and Greece, although Rob pointed out that there are other regions beyond Europe where opportunities may lie in the future.

“We have an ambition over the next three to five years to have established a number of markets we can operate in”, which serves to illustrate the ambition of the management team.

With the business very much on the front foot, it is good to see the share price now responding positively, after a subdued period and naturally, investors were left wondering whether there was a persistent seller in the market.

Commenting on this aspect, Rob said they were unaware of any such seller, but that as with other quoted companies, some institutions were subject to redemptions forcing sales, which has perhaps played a part although appears to have concluded.

Returning to the results, the management here remains very clear that gross profit, rather than revenue, is a number investors should really focus on.

As FNX operates in part as an agent for mobile network operators, meaning the reported revenue can include the operator’s share of the economics, gross profit is therefore a much cleaner measure of what FNX itself is actually generating.

That overall result was particularly encouraging given that the company had to absorb a substantial reduction in its gambling business following the UK tax changes.

Management had previously said that gambling represented around 5% to 6% of the business last year and that is now closer to 3% to 4%, so they have clearly done a sterling job growing strongly after losing a chunk of activities.

Although the UK, where it has built its reputation, is a mature market, management clearly doesn’t regard that as an issue as the existing customer base continues to grow.

And it isn’t a business that needs to throw huge amounts of capital at international expansion either, which supports the investment case.

The underlying technology, development team and infrastructure are already in place in the UK and can effectively be exported into another country.

That should continue to provide the bread and butter, complementing its scalable model that will drive the future growth.

Management is wisely cautious though, which is arguably key to the success that has been achieved, and this manifests into a belt and braces approach.

Nothing is rushed and all the ducks have to be aligned before connectivity takes place and the revenues begin to roll.

Another key aspect of the journey here is that management is gradually building a pipeline of additional growth markets which could become increasingly meaningful over the next few years.

As a case in point, Rich Messaging is of particular interest, where FNX has developed its own RCS product, which effectively takes SMS and adds considerably more functionality.

Rather than merely sending a text containing a link, the message can contain images, video, buttons and calls to action and ultimately, payment functionality within the messaging environment.

The really interesting part is the potential to allow somebody to receive an offer and complete the transaction without leaving the messaging channel.

That could prove useful for competition businesses, although management sees applications beyond competitions, including retailers where there is a time sensitive reason for somebody to make a purchase.

As things stand, FNX doesn’t need any transformational acquisition or a huge new market, rather it just needs to stick to the knitting and do what it has historically done very well.

A business that has compounded gross profit at around 19% a year and EBITDA at around 23% over the past eight years ticks all the boxes and demonstrates why this quiet compounder is worth keeping close to hand.

Looking ahead to the current financial year, broker Cavendish has pencilled in revenue of £86.8m with a forecast adj EBITDA figure of £17.6m. Adjusted PBT is expected to come in at £16.1m giving EPS of 12.5p, whilst the dividend is anticipated to be raised to a handy 10p per share implying a highly attractive yield of circa 5% at the current price.

Importantly, management remains cautious, so it is feasible that FNX could mirror the recent results with a beat on numbers.

Additionally, it is worth noting that the free cash flow yield at circa 5.5% is impressive, being backed by an exceptionally efficient 93% cash conversion rate. That allows for the business to fund international expansion while comfortably supporting a growing and progressive dividend yield entirely out of its own organic cash generation.