Splitit Payments Ltd

SPT Details

Multi-Year Agreement with Mastercard: Splitit Payments Ltd (ASX: SPT) provides credit card-based instalment solutions to businesses and merchants. The market capitalisation of the company stood at $514.44 Mn as on 24^th June 2020. Recently, the company inked a multi-year agreement with global payments technology company, Mastercard intends to ramp up the adoption of its instalment solution around the world. SPT will leverage Mastercard’s network of partners to extend and scale instalment functionality to consumers and merchants.This agreement has an initial tenure of five-year with an option for the parties to terminate the agreement at the end of the initial term by giving at least six months’ notice of non-renewal.  As per the recent quarterly rebalance of S&P/ASX200 indices, the company has been added to All Ordinaries, effective from 22^nd June 2020.

Robust Growth in Merchant Sales Volume: During Q1 FY20, the company recorded accelerating growth in all leading KPI’s despite COVID-19 challenges. The cash receipts from customers for Q1 FY20 stood at US$0.67 million as compared to US$0.43 million in the previous quarter. SPT reported a net operating cash outflow of US$1.81 million for the quarter with a decline of US$2.95 million over the previous quarter. In the month of May 2020, the company has recorded Merchant Sales Volume amounting to US$25.8 million, reflecting a rise of 321%. North America and Europe segment showcased the growth of 336% and 548% against May 2019. These strong results were due to new large merchants onboarded in 2020, increasing the use of SPT’s solutions as well as the growing shift to e-Commerce.


Merchant Sales Volume (Source: Company Reports)

Focus on Acquisition: The company experienced a record start to Q1 FY20 with decent growth in MSV. SPT expects these volumes to continue as the company adds new large merchants and consumers’ preferences. The company added that the speed of acquisition and onboarding is expected to accelerate because of a strong partner network with commerce platforms like Shopify and Magento and improved payments technology via the partnership with Stripe. The company is focused on large merchant acquisition in target verticals, which underpins MSV and revenue growth.

Key Risks: The company is mainly exposed to foreign currency risk, which arises due to the fluctuation between rates of exchanges between US Dollar and the NIS (Israeli New Shekel) as well as between US dollar and Australian dollar. The company holds its liquid resources in short-term deposits in order to decrease the risk.

Stock Recommendation: Gross margin of the company stood at 70.8% in FY19, reflecting YoY growth of 21.5%. Current ratio of the company stood at 11.96x in FY20 as compared to the industry median of 2.14x. This indicates that the company is in a decent position to address its short -term obligations against the broader industry. The stock of SPT is trading at a Price to Book multiple of 16.1x against the industry median of 3.1x on TTM basis. During the span of one and three months, the stock of SPT has moved up by 194.95% and 579.07%, respectively. As a result, the stock of SPT is inclined towards 52-week high levels of $1.915. Hence, considering the aforesaid facts along with the price movement in the recent past, we are of the view that most of the positive factors have been discounted at current trading levels. Therefore, we suggest investors to book profit and give a “Sell” recommendation on the stock at the current market price of $1.415 per share, down by 3.082% on 24th June 2020.

 
SPT Daily Price Chart (Source: Refinitiv, Thomson Reuters)

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