Building a critical mass in Identity

Boku 5 November 2019 Update
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Boku

Building a critical mass in Identity

Contract announcement

Software & comp services

5 November 2019

Price

100.5p

Market cap

£252m

$1.29/£

Net cash ($m) at end H119

20.1

Shares in issue

250.1m

Free float

89%

Code

BOKU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1

(16.6)

(25.6)

Rel (local)

(2.1)

(16.9)

(28.3)

52-week high/low

148p

69p

Business description

Boku operates a billing and identity verification platform that connects merchants with mobile network operators in more than 50 countries. It has c 180 employees, with its main offices in the US, UK, Germany and India.

Next events

FY19 trading update

January 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Boku is a research client of Edison Investment Research Limited

Boku has signed a material identity data supply contract with a global mobile telecoms group. This is a crucial step in building out the scale of the Identity business, providing access to mobile subscribers in multiple countries. While we view this as a positive development for the Identity business, we have taken a more cautious approach to the timing of new merchant contracts, reducing Identity revenues and group EBITDA in FY20 and FY21.

Year
end

Revenue ($m)

EBITDA*
($m)

Diluted EPS*
($)

DPS
($)

P/E
(x)

EV/EBITDA
(x)

12/17

24.4

(2.3)

(0.03)

0.0

N/A

N/A

12/18

35.3

6.3

0.02

0.0

83.6

47.4

12/19e

52.0

9.3

0.02

0.0

71.4

32.2

12/20e

63.1

17.6

0.04

0.0

31.9

17.1

12/21e

73.2

24.9

0.06

0.0

20.9

12.0

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Identity partnership signed with global mobile group

Boku has signed an agreement with a global mobile telecoms group to provide mobile identity verification services to its mobile subscribers. As part of the agreement, Boku will integrate directly with the partner’s global hub, enabling any of the partner’s mobile network operators worldwide to connect with Boku’s Identity platform through a single connection. The more operators (and hence subscribers) connected to Boku’s Identity platform, the more attractive the identity verification service becomes to merchants operating in those geographies.

Laying the groundwork for longer-term growth

The company noted that progress on Identity was taking longer than initially expected. While this contract announcement is a step in the right direction, confirming supply of identity data for Boku, we have taken a more cautious view on the pace at which the company will sign up new merchants to use its Identity service. We have reduced our FY20 Identity revenue forecast from $17m to $12m, which increases the Identity EBITDA loss from $1.5m to $4.0m and reduces group EBITDA from $20.1m to $17.6m. For FY21e, we reduce Identity revenues by $5.5m and group EBITDA by $2.8m.

Valuation: Strong free cash flow yield

On an EV/EBITDA basis, Boku is trading at a discount to peers on FY20 and FY21 estimates. On a P/E basis, it trades at a small premium for FY20 and a discount for FY21. Boku’s strong cash generation is reflected in its above-average free cash flow yield for FY20 and FY21. Confirmation of contract extensions and new merchants for the Identity business, as well as evidence of a growing contribution from mobile wallets in the Payments business, could help to close the valuation discount.

Changes to forecasts

Exhibit 1: Changes to forecasts

$m

FY19e

FY20e

FY21e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

DCB revenues

43.1

43.1

0.0%

22.2%

51.1

51.1

0.0%

18.5%

58.2

58.2

0.0%

13.8%

Identity revenues

8.9

8.9

0.0%

N/A

17.0

12.0

-29.4%

34.8%

20.5

15.0

-26.8%

25.0%

Total revenues

52.0

52.0

0.0%

47.5%

68.1

63.1

-7.3%

21.3%

78.7

73.2

-7.0%

15.9%

Gross profit

44.0

44.0

0.0%

34.3%

57.1

54.6

-4.4%

23.9%

65.5

62.7

-4.2%

15.0%

Gross margin

84.6%

84.6%

0.0%

-8.3%

83.8%

86.4%

2.7%

1.8%

83.3%

85.8%

2.5%

-0.7%

EBITDA

9.3

9.3

0.0%

47.3%

20.1

17.6

-12.5%

88.5%

27.7

24.9

-9.9%

42.1%

EBITDA margin

17.9%

17.9%

0.0%

0.0%

29.4%

27.8%

-5.5%

9.9%

35.2%

34.1%

-3.2%

6.3%

Normalised operating profit

6.6

6.6

0.0%

36.4%

17.3

14.8

-14.4%

124.8%

25.0

22.3

-11.0%

50.1%

Normalised operating profit margin

12.7%

12.7%

0.0%

-1.0%

25.5%

23.5%

-1.9%

10.8%

31.8%

30.4%

-1.4%

6.9%

Reported operating profit

(3.8)

(3.8)

0.0%

57.4%

7.0

4.5

-35.5%

-219.5%

14.7

11.9

-18.7%

162.8%

Reported operating margin

-7.3%

-7.3%

0.0%

-0.5%

10.3%

7.2%

-3.1%

14.5%

18.7%

16.3%

-2.4%

9.1%

Normalised PBT

6.0

6.0

0.0%

40.5%

16.6

14.1

-15.0%

135.7%

24.4

21.6

-11.3%

53.2%

Reported PBT

(4.4)

(4.4)

0.0%

47.5%

6.3

3.8

-39.5%

N/A

14.1

11.3

-19.6%

195.8%

Normalised net income

4.7

4.7

0.0%

40.5%

13.1

11.2

-15.0%

135.7%

19.3

17.1

-11.3%

53.2%

Reported net income

(4.4)

(4.4)

0.0%

1.5%

5.7

3.4

-39.5%

N/A

11.9

9.6

-19.6%

179.4%

Normalised basic EPS ($)

0.020

0.020

0.0%

27.8%

0.052

0.044

-15.0%

121.2%

0.075

0.067

-11.3%

52.8%

Normalised diluted EPS ($)

0.018

0.018

0.0%

17.1%

0.048

0.041

-15.0%

123.6%

0.070

0.062

-11.3%

52.8%

Reported basic EPS ($)

(0.018)

(0.018)

0.0%

-7.8%

0.022

0.014

-39.5%

N/A

0.047

0.038

-19.6%

178.5%

Net debt/(cash)

(27.3)

(27.3)

0.0%

-5.4%

(46.6)

(43.5)

-6.7%

59.2%

(72.7)

(66.8)

-8.2%

53.5%

TPV ($bn)

5.05

5.05

0.0%

42.5%

6.65

6.65

0.0%

31.7%

7.95

7.95

0.0%

19.5%

Take rate

0.85%

0.85%

0.0%

0.77%

0.77%

0.0%

0.73%

0.73%

0.0%

Source: Edison Investment Research

Exhibit 2: Financial summary

$m

2014

2015

2016

2017

2018

2019e

2020e

2021e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

18.3

19.2

17.2

24.4

35.3

52.0

63.1

73.2

Cost of Sales

(4.1)

(4.0)

(3.2)

(2.3)

(2.5)

(8.0)

(8.6)

(10.4)

Gross Profit

14.2

15.2

14.0

22.1

32.8

44.0

54.6

62.7

EBITDA

 

 

(9.6)

(11.4)

(12.3)

(2.3)

6.3

9.3

17.6

24.9

Normalised operating profit 

(9.8)

(12.4)

(13.8)

(4.0)

4.8

6.6

14.8

22.3

Amortisation of acquired intangibles

(0.8)

(1.9)

(1.7)

(1.3)

(1.3)

(1.8)

(1.8)

(1.9)

Exceptionals

(2.1)

(0.1)

(2.4)

(2.2)

(1.4)

(0.1)

0.0

0.0

Share-based payments

(1.7)

(1.8)

(2.1)

(1.5)

(4.6)

(8.5)

(8.5)

(8.5)

Reported operating profit

(14.4)

(16.2)

(19.9)

(9.0)

(2.4)

(3.8)

4.5

11.9

Net Interest

(0.6)

(0.4)

(1.2)

(2.4)

(0.6)

(0.6)

(0.7)

(0.6)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

(17.1)

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(10.4)

(12.8)

(15.0)

(6.4)

4.3

6.0

14.1

21.6

Profit Before Tax (reported) 

(15.0)

(16.6)

(21.1)

(28.5)

(3.0)

(4.4)

3.8

11.3

Reported tax

(0.4)

(0.4)

0.5

(0.1)

(1.3)

0.0

(0.4)

(1.7)

Profit After Tax (norm)

(7.8)

(9.6)

(11.2)

(4.8)

3.4

4.7

11.2

17.1

Profit After Tax (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

(4.4)

3.4

9.6

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(7.8)

(9.6)

(11.2)

(4.8)

3.4

4.7

11.2

17.1

Net income (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

(4.4)

3.4

9.6

Basic ave. number of shares outstanding (m)

21.3

27.4

140.1

150.3

217.1

238.7

254.5

255.2

EPS - basic normalised ($) 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.02

0.04

0.07

EPS - diluted normalised ($) 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.02

0.04

0.06

EPS - basic reported ($)

 

 

(0.72)

(0.62)

(0.15)

(0.19)

(0.02)

(0.02)

0.01

0.04

Dividend ($)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

N/A

4.7

(10.4)

42.0

44.5

47.5

21.3

15.9

Gross Margin (%)

77.6

79.1

81.4

90.7

92.9

84.6

86.4

85.8

EBITDA Margin (%)

(52.5)

(59.2)

(71.4)

(9.5)

17.9

17.9

27.8

34.1

Normalised Operating Margin

(53.2)

(64.4)

(80.0)

(16.5)

13.7

12.7

23.5

30.4

BALANCE SHEET

Fixed Assets

 

 

32.7

30.8

26.8

26.9

23.0

50.6

48.2

46.8

Intangible Assets

32.5

30.1

25.7

25.8

22.5

47.0

45.3

43.2

Tangible Assets

0.2

0.7

0.5

0.4

0.3

2.9

1.5

0.3

Investments & other

0.0

0.0

0.6

0.7

0.3

0.7

1.5

3.3

Current Assets

 

 

72.5

53.0

48.9

79.3

84.0

96.6

123.4

154.1

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

59.7

43.3

37.1

59.1

51.7

63.6

75.4

83.9

Cash & cash equivalents

12.0

9.0

11.3

18.7

31.1

31.8

46.8

68.9

Other

0.7

0.6

0.5

1.4

1.3

1.3

1.3

1.3

Current Liabilities

 

 

(69.6)

(65.5)

(61.0)

(78.0)

(79.6)

(90.6)

(103.0)

(111.7)

Creditors

(64.6)

(60.4)

(54.9)

(75.5)

(77.4)

(86.1)

(99.6)

(109.5)

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

(5.0)

(5.1)

(6.1)

(2.5)

(2.2)

(4.5)

(3.3)

(2.2)

Other

0.0

0.0

0.0

(0.0)

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

0.0

(0.3)

(15.2)

(0.2)

(0.8)

(0.8)

(1.3)

(3.8)

Long term borrowings

0.0

(0.2)

(15.1)

(0.0)

0.0

0.0

0.0

0.0

Other long term liabilities

0.0

(0.1)

(0.1)

(0.1)

(0.8)

(0.8)

(1.3)

(3.8)

Net Assets

 

 

35.5

18.0

(0.4)

28.0

26.6

55.8

67.4

85.4

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

35.5

18.0

(0.4)

28.0

26.6

55.8

67.4

85.4

CASH FLOW

Op Cash Flow before WC and tax

(9.6)

(11.4)

(12.3)

(2.3)

6.3

9.3

17.6

24.9

Working capital

9.3

11.6

(3.4)

1.0

7.2

(3.1)

1.7

1.3

Exceptional & other

(1.6)

1.1

4.2

(5.5)

0.2

(0.8)

(0.4)

0.0

Tax

(0.0)

(0.0)

(0.0)

0.0

(0.2)

(0.4)

(0.7)

(1.0)

Net operating cash flow

 

 

(1.9)

1.3

(11.5)

(6.8)

13.5

5.0

18.2

25.3

Capex

(1.1)

(3.6)

(1.5)

(0.3)

(0.3)

(1.8)

(1.3)

(1.4)

Acquisitions/disposals

5.9

0.3

0.0

0.0

(0.2)

(0.7)

0.0

0.0

Net interest

(0.3)

(0.3)

(0.3)

(0.9)

(0.6)

(0.3)

(0.6)

(0.6)

Equity financing

0.2

0.1

0.1

19.8

0.5

0.4

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.6

(0.0)

0.1

(1.1)

0.2

0.0

0.0

0.0

Net Cash Flow

3.3

(2.2)

(13.1)

10.6

13.1

2.5

16.3

23.4

Opening net debt/(cash)

 

 

(4.9)

(7.0)

(3.6)

9.9

(16.2)

(28.9)

(27.3)

(43.5)

FX

(1.2)

(0.8)

(0.4)

0.4

(0.5)

(0.3)

(0.2)

(0.1)

Other non-cash movements

0.0

(0.4)

(0.0)

15.1

0.0

(3.8)

0.0

0.0

Closing net debt/(cash)

 

 

(7.0)

(3.6)

9.9

(16.2)

(28.9)

(27.3)

(43.5)

(66.8)

Source: Boku, Edison Investment Research

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Australia

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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United States

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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