- Revenue rises 12.5 per cent to £53.6mn on 11 per cent higher total transaction values processed
- Pre-tax profit and EPS up 16 per cent to £9.7mn and 8.1p
- Total dividend hiked 24 percent to 6.5 pa share
Annual results from Fonix Mobile (FNX:170p) highlight exactly why the technology group has been outperforming management’s expectations.
By offering a mobile payments service that enables merchants to charge customers’ mobile phone bills for products or services, Fonix’s technology turns the mobile device into a cash register while offering convenience for consumers. It’s an important customer acquisition tool, acting as a product differentiator to traditional payment methods, such as credit cards or ApplePay. Indeed, most merchants deploying Fonix’s payment solutions do so to reduce checkout abandonment and provide them with incremental revenues rather than cannibalizing existing transactions from alternative payment methods.
It’s worth noting that Fonix enjoys a high level of recurring revenue, having experienced no churn from major clients in the past six years, and continues to grow its revenue stream, too, signing up 20 new customers to close the financial year with 123 active customers .
Fonix’s 10.8 percent growth in transactions processed was significantly ahead of the rest of the UK market, hence why it was able to report double-digit profit growth across all three business segments (payments, messaging and managed services). Moreover, the business is already starting to see similar patterns emerge in the Republic of Ireland within a few months of launching services there.
The majority of growth has come from an expansion in existing customer revenues, new greenfield opportunities in sectors that have not utilized mobile payments previously, and a gradual expansion in new emerging sectors, such as e-scooter hiring. A focus on more profitable verticals, such as payments for car parking, cinema tickets, pay-and-go gyms, gaming and public transport, is driving gross profit margins up, too.
Although a significant proportion of Fonix’s income comes from discretionary consumer expenditure, the experience of previous recessions is that such transactions form an extremely small proportion of the average household budget and so have been largely unaffected by a squeeze on consumer spending. The current financial year has started well, and the directors report a strong pipeline of opportunities to exploit across the group’s target sectors and markets.
Analysts at finnCap expect another year of growth, pencilling in nine per cent growth in revenue, pre-tax profit, earnings per share and dividends to £58.5mn, £10.6mn, 8.8p and 7.1p, implying the shares are rated on a cash-adjusted forward price/earnings (PE) ratio of 18 and offer a prospective dividend yield of 5.1 percent.
The holding has produced a 29.5 percent total return since I initiated coverage (Alpha Research: Bargain opportunity to play the mobile payments boom’, 5 August 2021) during which time the FTSE Aim All-Share Total Return index has shed 31 per cent of its value, and is up seven per cent in a market down six per cent since I repeated that buy call at the pre-close trading update (‘Riding positive earnings cycles’, 21 July 2022). I maintain fair value at 190p. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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