Australia’s 5th largest merchant bank after the Big Four, Tyro Payments Ltd (ASX: TYR) has announced its first-half results.
As of midday, the Tyro share price had risen 12.5% to $3.06. Here are the key points from the results.
Record transaction volume reduces loss
Tyro processed $12.1 billion in transactions for the half, a 9.5% increase from the prior corresponding period (pcp). This was largely due to a 13.2% increase in merchants and a 16% increase in point-of-sale (POS) terminals over the period.
Of the three key payment verticals, retail performed the strongest, recording a 17% uplift in transaction value. Ongoing lockdown disruptions hampered growth in hospitality, which grew 6%. Reductions in elective medical procedures impacted the health vertical, which registered a marginal 0.5% decrease in transaction value.
Newer initiatives telehealth and e-commerce delivered strong transaction volume growth albeit off low bases, increasing 86% and 376%, respectively.
Tyro’s banking operations were materially reduced, as the company moved from automated to manual credit assessments to reduce credit risk given COVID-19 uncertainty. This reduced loan originations by 93% to $2.6 million.
While transaction volume increased overall, payments revenue fell 5.2% to $107.7 million, primarily due to a change in card mix. International credit cards, which earn a higher merchant service fee (MSF) fell to 0.7% from 4.4% due to the absence of international travel. As a result, the proportion of lower MSF debit cards increased to 61.5% from 56.5% of transaction volume.
Despite payment revenue falling, gross profit increased 15.9% to $61.2 million and gross margin increased 9.2 points to 50.4% resulting from lower scheme and interchange fees relating to debit cards.
Essentially, despite earning less revenue from a debit card, these transactions are more profitable for Tyro relative to international cards.
The business recorded an EBITDA of $8.5 million, up from $1.5 million a year ago. Net loss after tax shrunk to $3.4 million from $19.2 million, demonstrating more gross profit is dropping to the bottom line.
Terminal connectivity issue update
To rectify the terminal issue which impacted 30% of merchants in January, Tyro will provide all merchants with a dongle solution in combination with standard terminals to safeguard against future unforeseen outages – an industry-first initiative.
The business has not seen any material uptick in churn rates post the event and transaction volumes were growing between 14% and 18% prior to the recent Victorian lockdown.
My take
Despite the potential for a mass exodus following the terminal connectivity issue, management seems to have kept the damage to a minimum in the short-term. Nonetheless, the true impact will be revealed in the full-year results.
Transaction volume growth is ticking along nicely. Moreover, the net loss has materially shrunk. While management did not provide guidance, I’d be keeping a keen eye on signs of profitability as this will be a critical inflection point for Tyro.
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