Splitit Payments Ltd

Robust Top-line performance by Splitit: Information Technology company, Splitit Payments Ltd (ASX: SPT) provides credit card-based instalment solutions to retailers and businesses in Israel. It operates as an intermediate technology layer between its existing payment gateway and a merchant’s platform.

SPT recently published its annual results presentation where it reported an increase in its active merchants by 117% to 380 in FY2018.The company’s number of unique shoppers increased by 293% to 118,000. Its underlying merchant transactions increased by 253% to A$80.2 Mn. Its revenue from continuing operations increased by 203% to US$789,920, mainly derived from transaction fees processed through the Splitit payment platform. Its gross profit increased by 562% to US$389,793.

On March 18, 2019, SPT’s International Securities Identification Number (ISIN) has changed from AU0000036428 to IL0011570806 due to SPT’s place of incorporation (Israel). In a previous update, the company informed the exchange that it had appointed, former Managing Director of PayPal, Mr. Andrew Pipolo to head the Australian and Asia Pacific growth strategy. Adding on to the management update, the company informed that it hired Nathan Mairs, to spearhead its growth strategy. Nathan was former Director of Business Development at Klarna. In January 2019, the company raised capital of $12 Mn via IPO. The aforesaid moves show the company’s determination to deliver high value to its customers and shareholders.


FY2018 P&L Statement (Source: Company Reports)

What to expect from the company: Splitit has identified a number of target countries such as the US, Canada, UK, Italy, Singapore, and Australia, to focus on its sales and marketing efforts. Further, it is expected that the company will focus on 5 key industry verticals such as Medical, High-End Fashion, Sports Equipment, Homegoods, and Travel & Leisure. Also, the company is in the process of hiring talented sales personnel to expand its global presence. It is investing in innovative platforms, and building strong partnerships network with e-commerce platforms, payment processors, technology services and point of sales providers.
             
Stock Recommendation: Splitit’s shares generated a positive return of 58.08% in the last one month as at 26 March 2019. Its top line has performed well in 1HFY19. Given the company’s positive outlook, it is expected that the company will deliver a decent result in the forthcoming year. The share price has surged upwards in the recent past on the back of the company’s good operating performance. Hence, we recommend a “Speculative Buy” rating on the stock at the current market price of $1.31 (down 0.758% on March 27, 2019).
 

Change Financial Limited

An update on CCA’s growth prospect: Fintech company, Change Financial Limited (ASX: CCA) provides digital banking services which operates through three business units Consumer, Enterprise, and Blockchain.

It recently announced H1FY19 results where it reported an increase in its revenue by 18% PCP to US$507,513. This was due to diversification in its revenue streams through its investments in serving enterprise clients and banks. Its loss after tax decreased by 20% PCP to US$4,275,612. This can be attributed to a reduction in advertising & marketing expenses and program fees. The board of directors did not declare any dividend for the period.

Mr. Adam Gallagher was appointed as the company secretary effective from February 28, 2019.The company also revised its registered address to Chatwood Place c/- Change Financial Limited 29 Cairns Street, Kangaroo Point QLD 4169.


H1FY19 P&L Statement (Source: Company Reports)

What to expect from the company: The company in the first half retained management consultancy experts in the payments and digital financial services industry, Edgar Dunn & Company to finalize the strategic review of its businesses. Following the review, Change Financials plans to focus on the company’s processor business, to monetize its investment in the Ivy Project, and reposition its mobile banking business model as a complementary service to the processing business. As per Edgar Dunn & Company, in 2019, the market size of enterprise processor business would be around US$50 bn which is expected to grow at a CAGR of over 60% per annum till the year 2025.

Change Financial has successfully completed Mastercard’s third-party processor testing procedure. After the platform launch, it is expected to provide turn-key services targeting more than 7,000 Federal Deposit Insurance Corporation (FDIC) banks, 5,500 credit unions and corporations in the US with innovative, cost-effective mobile banking services.

Stock Recommendation: Change Financials’ share has generated negative YTD return of 27.59% and is trading at close to 52 weeks low price of $0.039. It has shown improvement in its Top-line. Given the positive outlook, the company despite continuous investments aims to reduce its operating costs in the coming times, which will help it to improve the bottom line. On the valuation front, its EV by sales for the (Trailing 12 Months) TTM stood at 2.6x, better than the industry median of 4.1x, implying better valuation multiple as compared to its peer group. Hence, considering the huge addressable market and anticipated high growth and the fact that the stock is trading near to its 52-week low, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.042 on March 27, 2019.
 

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