Yesterday, Smartpay Holdings Ltd (ASX: SMP) released its FY21 unaudited results, which sent shares up 3.29%.
Smartpay is a New Zealand based company that distributes EFTPOS terminals both domestically and in Australia.
SMP share price
Growth continues
For the full-year ended 31 March 2021, Smartpay reported group revenue of $33.8 million, up 19.7% on the prior year.
Its Australian segment was a standout, however, with acquiring revenue (a small percentage of the transaction value) up 80% on the prior year to $17.1 million.
Earnings before interest, tax, depreciation and amortisation (EBITDA explained) grew a modest 2.7% to $7.6 million. Management noted that investment in lead generation and sales and marketing capacity increased as trading restrictions eased.
Marketing spend was up 80% to $1.8 million across the period, so there seems to be still a big opportunity to land new customers.
Smartpay finished the year with a net loss of $15.2 million. But this was mainly due to a non-cash fair value adjustment ($12.7 million) of a convertible note, which occurred due to the steep rise in Smartpay’s share price.
Operating expenditures were up 25% from last year to $26.2 million.
My take
This is a pleasing result from Smartpay that confirms the strong growth trajectory, especially in its Australian business.
Operating expenditure (opex) will be one of the most important metrics to observe moving forward. Given the small margin that it collects from transactions, Smartpay needs to reach a critical point where opex starts increasing at a much smaller rate than revenue thanks to a largely fixed cost base.
The amount of terminals needed to reach this point is the big question, but I think there’s a compelling path to profitability based on its recent customer growth.
There might be a couple of reasons why the market might be overlooking Smartpay at the moment. For one, the mature New Zealand business, which makes up a large proportion of total revenue has been stagnant for years.
Australian revenue has been going gangbusters, but it’s been covered up by another large segment.
The $15.2 million loss also might be scaring off some potential investors. After you strip out the non-cash note revaluation and the increased marketing spend, the situation doesn’t look as bad as it did previously.
For more reading on Smartpay shares, click here to read: My deep-dive into Smartpay Holdings Ltd (ASX: SMP) shares.
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