Currency in EUR
Last close As at 26/01/2023
EUR0.06
▲ 0.05 (400.00%)
Market capitalisation
EUR1m
Research: Financials
Artificial intelligence (AI)-driven MyBucks (MBC) has made notable progress in recent months. The strategic partnership with NAGA is a key step in developing MBC’s digital banking business and builds on the H1 turnaround in banking results. These, along with improved cost ratios, partly countered the still burdensome level of financing costs, as the group swung into pre-tax profit from losses in the prior year. This takes the company a step closer to becoming net earnings positive. Debt refinancing costs are being reduced and a €11.7m gross private placing was undertaken in February. MBC is also well positioned for organic growth through the launch of new insurance and lending products and plans to integrate its TESS user experience product throughout its operations.
MyBucks |
Balanced focus on growth and margins
Financials |
Scale research report - Update
6 June 2018 |
Share price graph Share details
Business description
Bull
Bear
Analyst
|
Artificial intelligence (AI)-driven MyBucks (MBC) has made notable progress in recent months. The strategic partnership with NAGA is a key step in developing MBC’s digital banking business and builds on the H1 turnaround in banking results. These, along with improved cost ratios, partly countered the still burdensome level of financing costs, as the group swung into pre-tax profit from losses in the prior year. This takes the company a step closer to becoming net earnings positive. Debt refinancing costs are being reduced and a €11.7m gross private placing was undertaken in February. MBC is also well positioned for organic growth through the launch of new insurance and lending products and plans to integrate its TESS user experience product throughout its operations.
Top-line growth and efficiencies drive H118 results
MBC recorded a pre-tax profit of €66.6k in H118 vs a loss of €3.4m in H117 helped by an 18% y-o-y increase in revenue to €29m, and by y-o-y improvement in the impairment to revenue ratio (21.4% vs 23.9% in H117) and in the operational cost ratio (60.3% vs 71.2% in H117). Banks under the Opportunity Bank brand are the main driver of these enhanced operational ratios.
New partnership and lower refinancing costs
MBC entered into an exclusive partnership with the NAGA Group, enabling its 1.5m customers to gain access to NAGA’s crypto wallet and hence gain market share in emerging markets. The transaction will help MBC’s clients to trade and invest in crypto assets at transaction fees that are up to 50% lower than other fee payment methods and perform instant, real-time money transfers. The company also reduced the hard currency refinancing rate from ~21% to ~15% per year, resulting in pro-forma savings in interest paid worth €6m for FY19. A portion of those savings would also be reflected in FY18.
Valuation: Still trading at a discount to peers
With MBC yet to generate a net profit, we feel the EV/sales ratio is an appropriate multiple for peer group comparison. Based on consensus earnings forecasts (refer exhibit 2), MBC’s FY19 multiple of c 2.3x points to market expectations of revenues doubling over the next two years. This perhaps explains it trading at a premium to peer average (c 1.4x) and to Ferratum (c 1.3x), as the company continues to grow from a relatively smaller base of revenue (c €54m in FY17) than that of its peers. Scope for M&A and further new partnerships, such as the one with NAGA, may also be contributing to MBC’s premium over its peers.
Historical financials
Source: MBC data. Note: MBC listed in June 2016. |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
Financials: H118 results swing to pre-tax profit
H118 revenue increased 18.1% y-o-y to €29.0m, helping MBC swing to a pre-tax profit of €66.6k vs losses of €3.4m and €7.7m in H117 and FY17, respectively. This reflects improvements in the impairment-to-revenue ratio (21.4% in H118, down from 23.9% in H117 and 22.4% in FY17) and in the operating expense to revenue ratio (60.3% in H118, down from 71.2% in H117 and 68.8% in FY17). Enhancement of these ratios was due to banks, including those acquired from Opportunity International, which contributed operating profit of €8.2m for H118 compared with €10.3m in FY17. As a result, operating margins rose y-o-y to 33.6% in H118 from 21.5%. The Southern African lending operations generated €2.1m in PBT.
In contrast, MBC suffered a loss of c €0.5m in its Eastern African operations. More meaningful pre-tax losses of around €8.6m were incurred in the technology division, primarily due to high finance costs of approximately €11.9m.
It is clear that financial costs continue to weigh on MCB’s financial performance (Exhibit 1). However, refinancing measures have reduced the hard currency refinancing rate from around 21% to around 15% a year, resulting in pro-forma savings in interest paid worth €6m for FY19. A portion of those savings would also be reflected in FY18.
In February 2018 the company issued 1.3m shares, raising gross funds of €11.7m, to reduce overall financing costs and increase lending volume.
Exhibit 1: H118 financial highlights
€000s |
Six months to Dec 2017 |
Six months to Dec 2016 |
y-o-y % change |
Revenue |
29,007 |
24,564 |
18.1 |
Loan impairments |
(6,210) |
(5,863) |
5.9 |
Other income |
4,498 |
4,074 |
10.4 |
Operating expenses |
(17,547) |
(17,496) |
0.3 |
Operating profit |
9,748 |
5,279 |
84.7 |
Operating margin (%) |
33.6 |
21.5 |
56.4 |
Investment revenue |
2,189 |
859 |
154.9 |
Finance costs |
(11,870) |
(9,499) |
25.0 |
Profit before tax |
67 |
(3,361) |
N/A |
Income tax |
(2,210) |
(2,143) |
3.1 |
Net income from continuing operations |
(2,143) |
(5,504) |
(61.1) |
Loss from discontinued operations |
(598) |
(481) |
24.4 |
Total net income |
(2,741) |
(5,985) |
(54.2) |
Source: MyBucks accounts. Note: H117 (six months to December 2016) are restated.
Recent developments
MBC entered into a partnership with the NAGA Group in April 2018 to offer crypto currency-enabled NAGA WALLET to over 1.5 million MBC clients in emerging markets. To increase refinancing volumes and decrease refinancing costs, the company received a private placement of €11.7m (gross). It also reduced the hard-currency refinancing rate from c 21% to 15% per year, leading to an annualised pro-forma cost savings of €6m. These savings will be reflected partially in FY18 and fully in FY19. MBC appointed current CEO, Dave van Niekerk as executive chairman and promoted Tim Nuy, current deputy CEO, to the position of new CEO. The company also appointed Dr. Markus Schachner, formerly partner at Mckinsey & Co. and member of its leadership team of the European banking, asset management and insurance sectors, as deputy chairman.
MBC continues to place AI at the forefront of its technology drive. Its new technology, text-based virtual assistant (TESS), interprets natural language queries and will be integrated into MBC’s business, including collections, lending, banking, insurance, customer service and customer on-boarding. The company has already launched a WhatsApp-based lending application that uses TESS.
Valuation
MBC’s stock price rose in 2018 following the issuance of equity capital, which was used to reduce refinancing costs and increase lending volume. New partnership with the NAGA Group, described above, and potential for more such deals also seems to have contributed to the recent rise in the stock price. MBC is still reporting net losses, which in turn are weighing on the book value. As a result, MBC’s book value is a volatile measure and not comparable to its peers. Even though the company reported a positive PBT in H118, it may not be until 2019 that it starts reporting a net profit (based on consensus) and would probably take a few more years to stabilise its net earnings stream. Although MBC pays dividends to non-controlling interests, it will take some time before it starts paying dividends to its shareholders. Hence, we consider an EV/sales multiple as most apt for comparing MBC with its peers. We note that the EV/sales average of peers lags that of MBC for 2017 and for forward years until 2019, possibly reflecting MBC’s higher growth potential on a smaller revenue base compared to peers.
Exhibit 2: Peer group comparison
|
Market cap |
P/E (x) |
Price/book (x) |
Dividend yield (%) |
EV/ Sales |
||||||
(€m) |
2017 |
2018e |
2019e |
2017 |
2018e |
2017 |
2018e |
2017 |
2018e |
2019e |
|
Ferratum |
506 |
24.3 |
16.4 |
12.3 |
4.9 |
4.0 |
0.8 |
1.1 |
2.5 |
1.7 |
1.3 |
On Deck Capital |
389 |
N/A |
20.9 |
14.3 |
1.7 |
1.7 |
N/A |
N/A |
1.0 |
1.0 |
0.9 |
Letshego |
341 |
6.1 |
N/A |
4.5 |
1.0 |
N/A |
11.7 |
N/A |
3.1 |
N/A |
2.9 |
Capitec Bank |
6,890 |
22.7 |
18.7 |
15.1 |
5.4 |
4.5 |
1.7 |
2.0 |
1.0 |
1.0 |
1.0 |
Atlas Mara |
365 |
5.9 |
6.9 |
5.3 |
0.4 |
0.7 |
N/A |
N/A |
1.1 |
1.0 |
0.9 |
Peer group average |
14.7 |
15.7 |
10.3 |
2.7 |
2.7 |
4.7 |
1.6 |
1.7 |
1.2 |
1.4 |
|
MBC |
170 |
N/A |
N/A |
26.3 |
20.5 |
N/A |
N/A |
N/A |
3.5 |
3.3 |
2.3 |
Source: Bloomberg, Edison Investment Research. Note: Prices as at 30 May 2018. |
|
Trading for 2018 appears to have started on a solid footing, with Q118 licencing revenues double the prior year and, importantly, the re-launch of the Juke service on the 7digital platform in key territories in Q2. We plan to review our forecasts at the time of the full-year results at the end of June.
Get access to the very latest content matched to your personal investment style.