Splitit Payments Limited

 
Partnership with ETF Payments: Splitit Payments Limited (ASX: SPT) is a technology company providing cross-border credit-card based instalment solutions to businesses and retailers. Merchant fees are earned from twobusiness models to generate revenue- Funded Model and Basic Model.
 
The company recently announced a partnership with EFT Payments (Asia) Limited, a payment solutions provider, established in Hong Kong, focusing on digital wallet services, to offer Splitit’s instalment solution to EFTPay’s merchants operating in Hong Kong and Macau. As per the three-year partnership agreement, EFTPay needs to satisfy certain minimum annual targets for merchant transactions processed using Splitit’s solution and to pay the fees to Splitit based on the volume processed. If ETF reaches these annual targets, SPT expects to generate material revenue from the EFT Partnership of between US$2.5 million to USD$5 million over the life of the contract.
 
EFTPay is one of the key partners of Alipay in Hong Kong, which provides digital wallet services to merchants, including Marriott, UGG, Kate Spade, Sunglass Hut, Estee Lauder and many more. The online customers of these merchants can access to the payment method solution of SPT, to pay for purchases with an existing debit or credit card. The cost can be splitted into interest and fee-free monthly payments.
 
The company recently announced that it has appointed former Intuit Vice President of Marketing Brad Paterson as Managing Director, North America to lead its North American operations.
 
The number of active merchants and shoppers continued to increase over the last few quarters, delivering significant growth in Underlying Merchant Transactions and subsequently merchant fees. During the quarter of March 2019, 57 new Active Merchants and 42,000 new Unique Shoppers were added in the portfolio of the company, as they started using the Splitit platform representing an increase of ~103% and ~290% (Y-o-Y), respectively.
 

Key Metrics Performance Q1 2019 (Source: Company Reports)
 
On the financial performance front, the company reported a net loss after income tax of ~USD$4.64 million in FY18 as compared to ~USD$3.42 million in FY17. The sales income for FY18 stood at USD$789,920, up from USD$260,409 in FY17, exhibiting a substantial increase. The sales income was primarily comprised of merchant fees.
 
What to Expect From SPT: The company has given the sales outlook for FY19 with focus on acquiring market share with high ticket merchants. It will continue with its strategy to win the customer first. The company will expand its activity within the existing strategic merchants to spread greater awareness among industries.
 
Stock Recommendation: The company witnessed strong revenue performance, with several opportunities for expansion. Moreover, it has seen decent growth in the business drivers. However,the stock performance remained volatile with negative returns of 29.13% and 34.82% over the past one-month and three months period, respectively. Considering the growth outlook and looking at current trading level, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.790 (up, 8.219% as of 5 June 2019).
 

EML Payments Limited

Decent Performance in 1HFY19: EML Payments Limited (ASX: EML) provides prepaid payment services in Australia, Europe, and North America. The company recently announced that one of its substantial holders, Challenger Limited and its subsidiaries have increased its stake in the company from an earlier 7.42% to 8.73%.

In the recent past, the company announced that it has entered into an eight-year agreement with Smartgroup Corporation Limited (ASX: SIQ) to be their provider of branded General-Purpose Reloadable card programs for pay-out of Salary Packaging benefits. EML has been working with Smartgroup since 2017 and currently, manages approximately 50,000 benefit accounts.


FY19 Guidance (Source: Company Reports)
 
EML’s revenues increased by 23% over the prior corresponding period to $47.2 million in the first half of 2019, with growth driven by all segments including G&I up 49%, GPR up 13% and VANS up 100%. The Group generated EBTDA of $13.74 million for the half year due to strong revenue growth driven by organic and acquisitive business development.

Revenue Guidance: The company has updated the revenue guidance for the 2019 financial year and now expects it to be between $88-94 million as compared to the previous guidance of $82-88 million. Approximately $4.5 million of breakage revenue will be recognised in the second half of 2019 (H2 2019), following the Group's adoption of AASB 15 Revenue from contracts with customers. The company has narrowed the FY19 EBTDA guidance to be between $27-28 million compared to previous guidance of $26-28 million.
 
Stock Recommendation: The stock has generated a YTD return of 73.33%. The company remains debt free with $50.1 million of cash at hand. The group revenue growth is a positive reflection of the inherent diversification in the business and the lack of reliance on any one customer, segment or geography. The stock has gained ~108% in last 1-year and is trading close to its 52-week high. Hence, considering the robust fundamentals with enhanced revenue guidance and price performance in the last 1-year, we maintain our “Hold” recommendation on the stock at a current market price of $2.700 per share (up, 3.846% on June 05, 2019).

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