Payments volumes +35% year-on-year

Boku 10 June 2020 Update
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Boku

Payments volumes +35% year-on-year

Trading update

Software & comp services

10 June 2020

Price

85.5p

Market cap

£220m

$1.27:£1

Net cash ($m) at end FY19

32.6

Shares in issue

257.1m

Free float

89%

Code

BOKU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.3

32.6

(36.0)

Rel (local)

(2.8)

26.0

(26.8)

52-week high/low

132p

49p

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 215 employees, with its main offices in the US, UK, Germany and India.

Next events

H120 trading update

July 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Boku is a research client of Edison Investment Research Limited

Boku’s five-month trading update confirmed that lockdowns have resulted in increased demand for home entertainment, driving new users to Boku’s Payments business. Management is confident of meeting market expectations for FY20 and we maintain our current estimates. We note, however, that if demand from new users can be sustained there could be upside to our forecasts.

Year
end

Revenue ($m)

EBITDA*
($m)

Diluted EPS*
($)

DPS
($)

P/E
(x)

EV/EBITDA
(x)

12/18

35.3

6.3

0.02

0.0

70.0

39.0

12/19

50.1

7.4**

0.01

0.0

90.3

33.3

12/20e

52.0

10.5

0.02

0.0

53.4

23.4

12/21e

60.8

14.3

0.03

0.0

34.6

17.2

12/22e

69.4

17.0

0.04

0.0

27.2

14.5

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

Good progress year to date

Boku’s trading update for the first five months of FY20 (5M20) confirmed that good progress was made in both the Payments & Identity businesses. In the Payments business, total payment volumes (TPV) grew 35% y-o-y to $2.6bn, and monthly active users (MAUs) at the end of May exceeded 20 million (+36% y-o-y, +12% since February 2020). New users during 5M20 increased 20% y-o-y to 9.2 million. Payments deployments are at record levels, covering a wide range of countries and merchants. Live wallets processing payment transactions have increased from two in February to seven in May. The company recently reported that it has expanded the supply of data in its Identity business, and merchants (including FIS, the owner of Worldpay) are generating revenue in five countries.

Estimates maintained; Payments could drive upside

Management is confident of meeting FY20 expectations and expects to provide a half-year update in due course. While Payments volumes year to date are strong, it is unclear how sustainable these increased volumes will be once lockdowns are relaxed. In addition, COVID-19 disruption could affect future deployments and delay progress in signing up merchants for Identity services. At this point, we maintain our estimates.

Valuation: Sum-of-parts suggests upside

On EV/Sales and EV/EBITDA, Boku is trading at a discount to the average of payment processor peers and identity management peers. However, we believe that Boku’s investment in the Identity business is masking the performance of the Payments business. As the two business have different growth and profitability dynamics, we take a sum-of-the-parts approach to assign value to each separately, generating a group equity value of $388m or 119p per share (117p previously). Excluding the Identity business entirely, the group would be worth $363m or 111p per share (108p previously), still well ahead of the current share price. Key catalysts for the share price include evidence of growth in the Boku Identity business, new major merchants being signed up in either business or a growing contribution from the wallets service.

Exhibit 1: Financial summary

$m

2014

2015

2016

2017

2018

2019

2020e

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

18.3

19.2

17.2

24.4

35.3

50.1

52.0

60.8

69.4

Cost of Sales

(4.1)

(4.0)

(3.2)

(2.3)

(2.5)

(5.6)

(6.5)

(9.0)

(11.4)

Gross Profit

14.2

15.2

14.0

22.1

32.8

44.6

45.6

51.8

58.0

EBITDA

 

 

(9.6)

(11.4)

(12.3)

(2.3)

6.3

10.7

10.5

14.3

17.0

Normalised operating profit

 

 

(9.8)

(12.4)

(13.8)

(4.0)

4.8

4.5

7.8

11.6

14.5

Amortisation of acquired intangibles

(0.8)

(1.9)

(1.7)

(1.3)

(1.3)

(1.6)

(1.6)

(1.6)

(0.8)

Exceptionals

(2.1)

(0.1)

(2.4)

(2.2)

(1.4)

(0.3)

0.0

0.0

0.0

Share-based payments

(1.7)

(1.8)

(2.1)

(1.5)

(4.6)

(6.8)

(5.1)

(5.1)

(5.1)

Reported operating profit

(14.4)

(16.2)

(19.9)

(9.0)

(2.4)

(4.1)

1.1

5.0

8.7

Net Interest

(0.6)

(0.4)

(1.2)

(2.4)

(0.6)

(0.4)

(0.7)

(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

0.0

Exceptionals

0.0

0.0

0.0

(17.1)

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(10.4)

(12.8)

(15.0)

(6.4)

4.3

4.1

7.1

11.0

13.9

Profit Before Tax (reported)

 

 

(15.0)

(16.6)

(21.1)

(28.5)

(3.0)

(1.3)

0.4

4.3

8.1

Reported tax

(0.4)

(0.4)

0.5

(0.1)

(1.3)

1.7

(0.0)

(0.6)

(1.2)

Profit After Tax (norm)

(7.8)

(9.6)

(11.2)

(4.8)

3.4

3.2

5.6

8.7

11.0

Profit After Tax (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

0.4

0.4

3.6

6.8

Minority interests

0.0

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

0.0

Net income (normalised)

(7.8)

(9.6)

(11.2)

(4.8)

3.4

3.2

5.6

8.7

11.0

Net income (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

0.4

0.4

3.6

6.8

Basic ave. number of shares outstanding (m)

21.3

27.4

140.1

150.3

217.1

246.8

253.1

253.9

253.9

EPS - basic normalised ($)

 

 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.01

0.02

0.03

0.04

EPS - diluted normalised ($)

 

 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.01

0.02

0.03

0.04

EPS - basic reported ($)

 

 

(0.72)

(0.62)

(0.15)

(0.19)

(0.02)

0.00

0.00

0.01

0.03

Dividend ($)

0.00

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

42.2

3.7

17.0

14.1

Gross Margin (%)

77.6

79.1

81.4

90.7

92.9

88.9

87.6

85.2

83.5

EBITDA Margin (%)

(52.5)

(59.2)

(71.4)

(9.5)

17.9

21.3

20.2

23.6

24.6

Normalised Operating Margin

(53.2)

(64.4)

(80.0)

(16.5)

13.7

9.0

15.0

19.1

21.0

BALANCE SHEET

Fixed Assets

 

 

32.7

30.8

26.8

26.9

23.0

52.2

50.0

47.7

45.9

Intangible Assets

32.5

30.1

25.7

25.8

22.5

46.8

45.3

43.5

42.8

Tangible Assets

0.2

0.7

0.5

0.4

0.3

3.5

2.2

1.3

0.4

Investments & other

0.0

0.0

0.6

0.7

0.3

1.8

2.5

2.8

2.6

Current Assets

 

 

72.5

53.0

48.9

79.3

84.0

89.2

92.1

118.5

145.7

Stocks

0.0

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

53.6

54.9

68.1

78.2

Cash & cash equivalents

12.0

9.0

11.3

18.7

31.1

34.7

36.3

49.5

66.6

Other

0.7

0.6

0.5

1.4

1.3

0.9

0.9

0.9

0.9

Current Liabilities

 

 

(69.6)

(65.5)

(61.0)

(78.0)

(79.6)

(81.8)

(78.8)

(94.3)

(107.6)

Creditors

(64.6)

(60.4)

(54.9)

(75.5)

(77.4)

(78.0)

(75.4)

(92.1)

(105.5)

Tax and social security

0.0

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)

(2.1)

(2.1)

(2.1)

(2.1)

Other

0.0

0.0

0.0

(0.0)

0.0

(1.7)

(1.3)

(0.0)

(0.0)

Long Term Liabilities

 

 

0.0

(0.3)

(15.2)

(0.2)

(0.8)

(2.6)

(1.2)

(1.2)

(1.2)

Long term borrowings

0.0

(0.2)

(15.1)

(0.0)

0.0

0.0

0.0

0.0

0.0

Other long-term liabilities

0.0

(0.1)

(0.1)

(0.1)

(0.8)

(2.6)

(1.2)

(1.2)

(1.2)

Net Assets

 

 

35.5

18.0

(0.4)

28.0

26.6

57.0

62.1

70.7

82.7

Minority interests

0.0

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

57.0

62.1

70.7

82.7

CASH FLOW

Op Cash Flow before WC and tax

(9.6)

(11.4)

(12.3)

(2.3)

6.3

7.4

10.5

14.3

17.0

Working capital

9.3

11.6

(3.4)

1.0

7.2

3.0

(3.9)

3.6

3.2

Exceptional & other

(1.6)

1.1

4.2

(5.5)

0.2

(1.3)

(0.4)

0.0

0.0

Tax

(0.0)

(0.0)

(0.0)

0.0

(0.2)

(0.1)

(0.7)

(1.0)

(1.0)

Net operating cash flow

 

 

(1.9)

1.3

(11.5)

(6.8)

13.5

9.0

5.6

16.9

19.3

Capex

(1.1)

(3.6)

(1.5)

(0.3)

(0.3)

(2.1)

(1.5)

(1.6)

(1.6)

Acquisitions/disposals

5.9

0.3

0.0

0.0

(0.2)

(0.7)

0.0

0.0

0.0

Net interest

(0.3)

(0.3)

(0.3)

(0.9)

(0.6)

(0.4)

(0.6)

(0.6)

(0.6)

Equity financing

0.2

0.1

0.1

19.8

0.5

0.6

0.0

0.0

0.0

Dividends

0.0

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

(1.5)

(1.9)

(1.5)

0.0

Net Cash Flow

3.3

(2.2)

(13.1)

10.6

13.1

4.857

1.6

13.2

17.1

Opening net debt/(cash)

 

 

(4.9)

(7.0)

(3.6)

9.9

(16.2)

(28.9)

(32.6)

(34.2)

(47.5)

FX

(1.2)

(0.8)

(0.4)

0.4

(0.5)

(1.1)

0.0

0.0

0.0

Other non-cash movements

0.0

(0.4)

(0.0)

15.1

(0.0)

(0.0)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7.0)

(3.6)

9.9

(16.2)

(28.9)

(32.6)

(34.2)

(47.5)

(64.5)

Source: Boku, Edison Investment Research

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This report has been commissioned by Boku and prepared and issued by Edison, in consideration of a fee payable by Boku. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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General disclaimer and copyright

This report has been commissioned by Boku and prepared and issued by Edison, in consideration of a fee payable by Boku. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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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

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