boku 2

Upgrading FY20 EBITDA

Boku 2 December 2020 Update
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Boku

Upgrading FY20 EBITDA

Trading update

Software & comp services

2 December 2020

Price

122.5p

Market cap

£352m

US$1.34:£1

Net cash ($m) at end H120

60.4

Shares in issue

287.3m

Free float

89%

Code

BOKU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.7

32.4

45.8

Rel (local)

(10.4)

20.6

62.9

52-week high/low

123p

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

Next events

FY20 trading update

January 2021

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Boku is a research client of Edison Investment Research Limited

Boku has released a trading update confirming that EBITDA is likely to be ahead of consensus expectations for FY20. As most of the upside is due to COVID-19-related cost savings, we have upgraded our FY20 EBITDA and EPS forecasts by 10% and 15%, respectively. We leave our FY21/22 forecasts unchanged, pending a more detailed trading update in January that will cover the busy December holiday season.

Year
end

Revenue ($m)

EBITDA*
($m)

Diluted EPS*
($)

DPS
($)

P/E
(x)

EV/EBITDA
(x)

12/18

35.3

6.3

0.016

0.0

105.8

72.1

12/19

50.1

7.4**

0.012

0.0

136.5

61.6

12/20e

55.4

13.5

0.025

0.0

65.5

33.7

12/21e

66.4

17.7

0.032

0.0

52.1

25.8

12/22e

77.7

21.1

0.040

0.0

41.0

21.6

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

Cost savings boost FY20 EBITDA

Boku has announced that as a result of continued strong trading in the Payments business and the benefit of COVID-19-related cost savings, the board now expects group EBITDA of at least $13.5m for FY20, at least $1m higher than current consensus. It will provide a more detailed trading update in January that will cover the peak December trading period. This may also provide some evidence of the stickiness of customers signed up during recent lockdowns.

Upgrading FY20 forecasts

We have made a small upward revision to our FY20 revenue forecast (+0.5%) to reflect slightly stronger trading from the Payments business. We have reduced operating costs by c $0.9m and reflected a higher share count from the recent vesting of restricted stock units and the exercise of options by management. We raise our FY20 EBITDA forecast by 10% (from $12.3m to $13.5m) and our normalised diluted EPS by 15%. We make no changes to FY21/FY22 revenue or EBITDA forecasts at this point.

Valuation: Reflects lockdown boost to Payments

Having gained 35% since reporting H1 results in September, Boku is trading at a discount to the average of payment processor peers on an EV/sales and EV/EBITDA basis, and at a small premium to identity management peers on both multiples. Reflecting the different growth and profitability dynamics of the Payments and Identity businesses, we use a sum-of-the-parts approach to assign value to each separately, generating a group equity value of 127p per share (previously 124p per share). Excluding the Identity business entirely, Boku would be worth 120.5p per share. In addition to clarity over the longevity of new Payments customers who signed up during lockdowns, key catalysts for the share price include a return to revenue growth in the Boku Identity business, new major merchants being signed up and a growing contribution from wallets.

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

55.4

66.4

77.7

Cost of Sales

(4.1)

(4.0)

(3.2)

(2.3)

(2.5)

(5.6)

(5.4)

(7.3)

(10.5)

Gross Profit

14.2

15.2

14.0

22.1

32.8

44.6

50.0

59.1

67.2

EBITDA

 

 

(9.6)

(11.4)

(12.3)

(2.3)

6.3

10.7

13.5

17.7

21.1

Normalised operating profit

 

 

(9.8)

(12.4)

(13.8)

(4.0)

4.8

4.5

10.0

13.5

16.8

Amortisation of acquired intangibles

(0.8)

(1.9)

(1.7)

(1.3)

(1.3)

(1.6)

(1.7)

(1.5)

(0.4)

Exceptionals

(2.1)

(0.1)

(2.4)

(2.2)

(1.4)

(0.3)

(0.8)

0.0

0.0

Share-based payments

(1.7)

(1.8)

(2.1)

(1.5)

(4.6)

(6.8)

(7.0)

(5.5)

(5.5)

Reported operating profit

(14.4)

(16.2)

(19.9)

(9.0)

(2.4)

(4.1)

0.5

6.6

10.9

Net Interest

(0.6)

(0.4)

(1.2)

(2.4)

(0.6)

(0.4)

(0.8)

(1.3)

(1.2)

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

9.2

12.3

15.6

Profit Before Tax (reported)

 

 

(15.0)

(16.6)

(21.1)

(28.5)

(3.0)

(1.3)

(0.3)

5.3

9.7

Reported tax

(0.4)

(0.4)

0.5

(0.1)

(1.3)

1.7

(0.0)

(0.5)

(1.5)

Profit After Tax (norm)

(7.8)

(9.6)

(11.2)

(4.8)

3.4

3.2

7.3

9.8

12.5

Profit After Tax (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

0.4

(0.3)

4.8

8.2

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

7.3

9.8

12.5

Net income (reported)

(15.4)

(17.0)

(20.6)

(28.7)

(4.3)

0.4

(0.3)

4.8

8.2

Basic ave.number of shares outstanding (m)

21.3

27.4

140.1

150.3

217.1

246.8

269.9

287.6

287.6

EPS - basic normalised ($)

 

 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.01

0.03

0.03

0.04

EPS - diluted normalised ($)

 

 

(0.36)

(0.35)

(0.08)

(0.03)

0.02

0.01

0.03

0.03

0.04

EPS - basic reported ($)

 

 

(0.72)

(0.62)

(0.15)

(0.19)

(0.02)

0.00

(0.00)

0.02

0.03

Dividend ($)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

#DIV/0!

4.7

(10.4)

42.0

44.5

42.2

10.5

19.8

16.9

Gross Margin (%)

77.6

79.1

81.4

90.7

92.9

88.9

90.3

89.1

86.5

EBITDA Margin (%)

(52.5)

(59.2)

(71.4)

(9.5)

17.9

21.3

24.4

26.6

27.2

Normalised Operating Margin

(53.2)

(64.4)

(80.0)

(16.5)

13.7

9.0

18.0

20.4

21.6

BALANCE SHEET

Fixed Assets

 

 

32.7

30.8

26.8

26.9

23.0

52.2

95.7

93.9

92.1

Intangible Assets

32.5

30.1

25.7

25.8

22.5

46.8

91.2

89.8

89.5

Tangible Assets

0.2

0.7

0.5

0.4

0.3

3.5

2.1

1.1

0.1

Investments & other

0.0

0.0

0.6

0.7

0.3

1.8

2.5

3.0

2.5

Current Assets

 

 

72.5

53.0

48.9

79.3

84.0

89.2

104.9

147.4

180.5

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

65.8

92.6

106.9

Cash & cash equivalents

12.0

9.0

11.3

18.7

31.1

34.7

38.2

53.9

72.7

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)

(93.2)

(124.7)

(143.6)

Creditors

(64.6)

(60.4)

(54.9)

(75.5)

(77.4)

(78.0)

(87.9)

(120.9)

(139.6)

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)

(3.3)

(3.3)

(3.3)

Other

0.0

0.0

0.0

(0.0)

0.0

(1.7)

(1.9)

(0.5)

(0.6)

Long Term Liabilities

 

 

0.0

(0.3)

(15.2)

(0.2)

(0.8)

(2.6)

(17.4)

(16.1)

(14.9)

Long term borrowings

0.0

(0.2)

(15.1)

(0.0)

0.0

0.0

(16.2)

(14.9)

(13.7)

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

90.1

100.4

114.1

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

90.1

100.4

114.1

CASH FLOW

Op Cash Flow before WC and tax

(9.6)

(11.4)

(12.3)

(2.3)

6.3

7.4

13.5

17.7

21.1

Working capital

9.3

11.6

(3.4)

1.0

7.2

3.0

(2.4)

6.2

4.4

Exceptional & other

(1.6)

1.1

4.2

(5.5)

0.2

(1.3)

(1.1)

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

9.4

22.9

24.5

Capex

(1.1)

(3.6)

(1.5)

(0.3)

(0.3)

(2.1)

(2.5)

(2.7)

(2.8)

Acquisitions/disposals

5.9

0.3

0.0

0.0

(0.2)

(0.7)

(43.0)

0.0

0.0

Net interest

(0.3)

(0.3)

(0.3)

(0.9)

(0.6)

(0.4)

(0.6)

(1.2)

(1.1)

Equity financing

0.2

0.1

0.1

19.8

0.5

0.6

24.8

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)

(2.1)

(0.6)

Net Cash Flow

3.3

(2.2)

(13.1)

10.6

13.1

4.857

(13.9)

17.0

20.0

Opening net debt/(cash)

 

 

(4.9)

(7.0)

(3.6)

9.9

(16.2)

(28.9)

(32.6)

(18.7)

(35.7)

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)

(18.7)

(35.7)

(55.7)

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.

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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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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.

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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

1185 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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