There was a Trading Update yesterday morning from FONIX Mobile, a fairly recent newcomer to the AIM, where having bought the shares soon after its IPO, I added further at £1.28p earlier this week.
That could perhaps have been perceived by some as a leap of faith, given that the shares had retraced from a peak of £1.90p implying that there may be something ominous on the horizon.
As it transpires, the update in this writer’s view was both positive and upbeat, suggesting that at the current price of £1.25p and with a market cap of £129m, the shares represent very good value.
With Fonix - which is a mobile payments platform business - you have a growth stock that enjoys strong cash generation with the added attraction of a progressive dividend policy in place.
The latter is providing a decent yield on the back of a total 5.2p payment for the year ended, which then moves to an anticipated 5.7p for 2022 which is somewhat rare across the space.
Yesterday’s update stated that the financials were comfortably in-line with expectations with total payment volume growing by 10% to £233m.
Importantly, expansion has continued with no churn experienced and it now has over 100 active customers across sectors including media, gaming and charities.
There was also some welcome news on its expansion plans away from its core UK market, which is an area that could really assist in the growth ambitions ahead.
This sees Fonix revealing that it has established its first overseas operator connections with a pending launch in Austria which should be followed by another European territory relating to service launches.
Looking at the last in depth FinnCap note, the adjusted EPS figure for the coming year 2022 is currently set at 7.6p which sees the stock trading on a forward PER of 16, which looks very good value for a growing company that is seemingly well placed to extend its footprint.
There are however some questions that need to be asked in the bigger picture and the recent slippage southwards of the share price has no doubt unnerved some investors.
In order to learn more on the recent performance and the prospects ahead I again caught up with CEO Rob Weisz, which provides for some welcome further clarity on specific areas.
Weisz sounds as upbeat as when we last spoke, although arguably shares the frustration other shareholders have felt with the recent retrace of the stock. He points out that there is really only so much that they can do on that front and believes that it will make right over time.
It’s a fair comment, as no doubt others holding Fonix are eyeing the longer term as opposed to any potential short term gains and any current seller that may be dragging the price sounthwards.
Speaking of the market update, Weisz recognises that there may be questions as to why, after such a stellar H1, there was no subsequent upgrade.
To this end, he says that whilst Fonix does not see seasonality per se, some larger clients chose to shift the timing of some of their campaigns to different times. “We saw a couple of our bigger clients deciding to move revenues forward and that happened during October and November” says the CEO.
On the back of that, Weisz also adds that they rather expected that January and February may be softer as a result of this, although expanding further he says reassuringly that there is nothing in that to suggest a downward trading shift as it really is a case of a movement of revenue in a specific time period.
“The key thing for us has been to break through the numbers this year and we have been committed to doing that and the full year numbers will be representative of that”.
As reported, things look well on track with Weisz pointing out that they haven’t lost a single client, the trading direction remains strong as does the exit run rate and their clients are trading really well.
With over one hundred customers now on board, the CEO says that within that number, some are very steady and growing, whilst some are more wavy, but clearly in a growing trend nonetheless.
With Fonix perhaps best known by many for its association with Children In Need, I also have to ask about its involvement with Love Island, which appears enjoy a very captive audience.
Weisz confirms that via its relationship with ITV Fonix is involved across the digital interactive space and competitions with the programme, where carrier billing is involved.
Such high profile customers of which there are many, now serves to illustrate the huge potential that exists in the home UK market, be it charities, gaming or digital entertainment.
“These are multi billion pound sectors in their own right” says Weisz “and we have always been confident we could go after that and the pipeline and road map remains strong.
Naturally International exposure has been something we would look at and we have been keeping a close eye on that”.
He recognizes and believes that too many businesses in the space have expanded across the globe, often on a whim without having a specific customer to go to. That hasn’t been the Fonix plan, rather, it has been focused on identifying a decent customer with matching value that is very tangible and is big enough to take them into a big market.
The CEO adds that some markets in small populous countries such as Bulgaria or Luxemburg are really not attractive for Fonix’s expansion plans, perhaps suggesting that those markets it does target should indeed provide for strong growth potential.
In the release yesterday the company referred to the impending launch of activity in Austria and Weisz expands for me, “for us, we have a handful of customers in a mature market for carrier billing which over the last six months or so have said that they quite like the Austrian market and we have said we can support that.
As a result, we have obviously spent time scoping that out and putting the technical integration in place to support the carrier billing”.
Weisz had previously alluded to such a move that is likely to be the first of a number moving forward, although exact timing has understandably been difficult.
To this end, the CEO says that he had hoped that going live may have happened in June, but realistically knew that was unlikely to happen, although he stresses that it is very close now. “We have been progressing with a few deals and we are ready to go with contracts signed and in the final implementation of the testing, so I’d say we are about sixty days away now”.
Weisz acknowledges that the signing of contracts and technical implementation is largely worthless as their business and revenue stream is all transactional and the proof will be in the revenue pudding.
Quite rightly the CEO will not be drawn on potential numbers moving forward, but does add rather tantalizingly that he has a personal view and a firm one at that as to what it will be worth to Fonix or he certainly wouldn’t be doing it.
What he is prepared to divulge though, is that by H1 of this year they will be able to update investors on the going live in Austria and what the outturn from that looks like.
He also says that they have one or two other irons in fires and that they are progressing in another territory more quickly adding that they are now liasing with mobile operators and a merchant that is a big one that will be a big deal.
In addition, Weisz also says that they are continuing to look at other territories and will be client led on this driving the expansion opportunity.
Investors will be kept informed of developments on this front, as such key news will be announced to the market, says Weisz.
As mentioned and as others are aware, Fonix has in place a progressive dividend policy which the CEO says has been the case for a number of years as a private entity.
The plan is very much for this to continue and there is a strong belief and underlying confidence that the trend can be maintained with 75% of retained earnings providing for payments with plenty left in the coffers to support the business in development and marketing.
Weisz says that Fonix is very much a niche play in a niche area of the payment landscape which is wildly complicated and as it has served them well it is very much a case of sticking to their knitting.
Organic growth is key here although Weisz does say that should a very attractive acquisition opportunity present itself, then yes, it is something that would be considered.