Boku — Upgraded outlook for FY23

Boku (AIM: BOKU)

Last close As at 20/05/2024

GBP1.83

0.00 (0.00%)

Market capitalisation

GBP549m

More on this equity

Research: TMT

Boku — Upgraded outlook for FY23

Boku reported H123 revenue growth of 26% y-o-y to $38.2m, with a growing and now material contribution from local payment methods (LPMs). Adjusted EBITDA was 28% higher and the margin expanded by 0.7pp, as upside from higher revenues was partially offset by further investment to support LPMs. We have revised up our forecasts to reflect faster growth in total payment volumes (TPV) partially offset by higher investment in Boku’s payments network.

Katherine Thompson

Written by

Katherine Thompson

Director

Boku_resized

TMT

Boku

Upgraded outlook for FY23

H123 results

Software and comp services

26 September 2023

Price

142.0p

Market cap

£423m

$1.22:£1

Net cash ($m) at end H123

(Excludes restricted cash of $14.7m)

99.2m

Shares in issue

296.3m

Free float

94.1%

Code

BOKU

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

2.5

2.10

47.9

Rel (local)

(1.0)

(4.1)

37.5

52-week high/low

154p

96p

Business description

Boku operates a billing platform that connects merchants with mobile network operators and alternative payment methods in more than 90 countries. It has c 370 employees, with its main offices in the US, UK, Estonia, Germany and India.

Next events

FY23 trading update

January 2024

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Boku is a research client of Edison Investment Research Limited

Boku reported H123 revenue growth of 26% y-o-y to $38.2m, with a growing and now material contribution from local payment methods (LPMs). Adjusted EBITDA was 28% higher and the margin expanded by 0.7pp, as upside from higher revenues was partially offset by further investment to support LPMs. We have revised up our forecasts to reflect faster growth in total payment volumes (TPV) partially offset by higher investment in Boku’s payments network.

Year
end

Revenue
($m)

EBITDA*
($m)

Diluted EPS*
(c)

DPS
($)

P/E
(x)

EV/EBITDA
(x)

12/21

62.1

22.9

4.7

0

36.8

18.2

12/22

63.8

20.5

4.0

0

43.7

20.4

12/23e

79.3

25.4

5.3

0

32.6

16.4

12/24e

90.7

30.1

6.5

0

26.8

13.9

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

LPMs now make up 19% of revenue

Boku reported TPV growth of 16% y-o-y to $5bn, and with a higher proportion of LPM transactions, the take rate grew by 6bp y-o-y to 0.76%. This resulted in revenue growth of 26% y-o-y (32% constant currency (cc)) and adjusted EBITDA growth of 28% (32.0% margin). LPM revenue grew 350% y-o-y to contribute 19% of H123 revenue, up from 5% a year ago. The company reported cash of $113.9m at the end of H123 (including $14.7m of restricted cash) of which c $54.4m was the company’s own cash.

Upgrading revenue and EBITDA forecasts

Wallets are seeing good adoption by Boku’s major merchants, driving a growing and material contribution to revenue. As A2A payments require an enhanced level of regulatory compliance and deeper integration with banks, Boku is still in the investment phase for this payment method. Once complete, we expect A2A will represent another growth driver and we would expect adjusted EBITDA margins to trend closer to the company’s medium-term 50% target. We have revised up our revenue forecasts to reflect higher-than-expected TPV growth and assume the majority of upside is reinvested in Boku’s mobile first payment network. This results in upgrades to our adjusted EBITDA forecasts of 2.1%/3.8%/0.2% for FY23/24/25.

Valuation: LPMs to drive upside

Boku is trading at a premium to its peer group on EV/EBITDA multiples for FY23, which we believe reflects downgrades to the growth outlook for certain peers. Via a reverse discounted cashflow (DCF) that uses our forecasts to FY25 (which are more conservative than the company’s mid-term targets would suggest), we estimate the share price is factoring in revenue growth of 6.4% and average EBITDA margins of 34.0% for FY26–32, well below the company’s targets. In a DCF factoring in meeting the targets by FY27, we estimate the shares could be worth 222p. A growing contribution from Amazon, continued adoption of LPMs and new major merchant sign-ups are the main triggers to achieve this, in our view.

Review of H123 results

In July, Boku’s H123 trading update confirmed the company expected revenue of at least $37.5m and adjusted EBITDA of least $12.0m. Boku reported H123 revenue of $38.2m (+26% y-o-y, +32% on a cc basis) and adjusted EBITDA of $12.2m (+28% y-o-y). Normalised operating profit was 35% higher year-on-year. Reported operating profit included share-based payments of $4.0m, amortisation of acquired intangibles of $0.6m and one-off charges totalling $3.0m ($3.13m FX losses offset by $0.018m fair value movement in warrant liability (discussed below) and $0.1m other income from providing accounting services to Twilio). The company closed H123 with total cash of $113.9m ($99.2m cash and $14.7m restricted cash) down from $116.6m at the end of FY22 ($99.6m cash, $17.0m restricted cash). Boku determines that $54.4m of this was its own cash as opposed to $59.5m cash in transit to merchants.

Exhibit 1: H123 results highlights

$m

H123

H122

y-o-y

Revenue

38.2

30.3

26%

Gross profit

36.9

29.4

25%

Adjusted EBITDA

12.2

9.5

28%

Normalised operating profit

9.7

7.2

35%

Reported operating profit

2.1

4.1

-48%

Normalised net income

7.9

5.4

47%

Reported net income

1.8

28.0

-94%

Normalised diluted EPS ($)

0.024

0.018

37%

Reported basic EPS ($)

0.006

0.094

-94%

Net cash*

113.9

67.8

68%

Gross margin

96.6%

96.8%

-0.3%

EBITDA margin

32.0%

31.3%

0.7%

Normalised EBIT margin

25.4%

23.7%

1.8%

Reported operating margin

5.6%

13.4%

-7.9%

Source: Boku, Edison Investment Research. Note: *Excludes lease liabilities, includes restricted cash.

Exhibit 2 summarises the company’s key operating metrics. Monthly active user and new user statistics are unchanged since the July trading update. TPV increased 16% y-o-y to $5.0bn, with some benefit from currency but the majority of the uplift from underlying volume growth. The average take rate increased by 6bp y-o-y reflecting the increasing proportion of LPM transactions, which have a take rate higher than the group average.

LPMs made up 7.7% of monthly active users, 19.3% of new users and 19% of H123 revenue. Revenue from carrier commerce (direct carrier billing (DCB) and carrier bundling) was 7% higher y-o-y (12% cc) with revenue from LPMs up 350% y-o-y. Of its largest DCB customers, Amazon, Spotify, Netflix, Meta and Tencent also use Boku for LPMs.

Exhibit 2: Key operating metrics H123 vs H122

H123

H122

Growth y-o-y

TPV ($bn)

5.0

4.3

16%

Take rate

0.76%

0.70%

Monthly active users (MAU)

61.2m

46.4m

32%

New users

32.7m

29.3m

12%

LPMs:

MAUs

4.7m

2.1m

122%

New users

6.3m

3.1m

103%

LPM MAU/Total MAU

7.7%

4.5%

LPM new users/total new users

19.3%

10.6%

Revenue from LPMs ($m)

7.2

1.6

350%

Revenue from carrier commerce ($m)

31.0

28.7

7%

LPM revenue/group revenue

19%

5%

Source: Boku

The company noted that it launched nearly 50 connections for existing and new merchants during H123, of which nearly two-thirds were for LPMs. Merchants included Apple, Amazon, Netflix, Sony, Spotify, Sky and Tencent.

Boku’s mobile-first payment network expanded to reach more than 7.5bn end-user accounts, of which 46% were non-DCB. The number of LPMs connected to the network rose from 25 connections in 14 countries at the end of H122 to 40 connections in 17 countries by the end of H123. The company has just announced that its Malaysian subsidiary has received authorisation from Bank Negara Malaysia to operate as a non-bank merchant acquirer, adding Malaysia to its network of payment licences.

Amazon wallets rolled out

In September 2022, Boku announced it had signed a contract to support Amazon Prime Video with wallets in certain countries in South East Asia and Africa. The company is now live with 12 wallets in five countries. As these are recent launches, the wallets have not yet made a significant contribution to revenue but should grow over the next 12–24 months.

As part of this contract, Amazon earns warrants to buy Boku shares in proportion to the revenues it generates for Boku. In our March outlook note, we explained the accounting for the warrants, which includes amortisation of a contract asset against revenue.

In H123, the number of warrants expected to be issued increased from 4,992,086 to 6,180,045, which implies that Boku has increased its forecast for the revenue to be generated from this contract from $23.85m to $29.52m. The company amortised $76.5k of the contract asset, which offset revenue. The value of the warrants has also slightly changed since the end of FY22 from $1.043 to $1.04, which resulted in a one-off credit of $18k in H123. This has resulted in a net increase of the contract asset by $1.162m and of the warrant liability by $1.221m since the end of FY22.

Share buyback scheme ongoing

In July 2022, the company launched a share buyback scheme to buy back up to a maximum of 5m shares or consideration of £8m. In June 2023, it extended the scheme by a further 12 months to 30 June 2024 and by an additional maximum of 5.25m shares or consideration of £10.5m. By the end of August, the company had bought back 6.189m shares for a total of £8.3m, of which 4.688m were acquired in FY23 for £6.7m (H123 3.088m shares for £4.4m). The purchased shares are to be held in treasury to satisfy future equity issuance. Since the buyback scheme was launched, 3.0m of the acquired shares have been used to satisfy restricted stock unit issues.

Outlook and changes to forecasts

The company noted that the strong performance seen in H1 has continued in H2 to date and it traded at record levels in July and August. All parts of the business are performing well and trading ahead of the internal budget at the time of Boku’s capital markets day in February this year. The company expects that as it nears the end of the investment phase for LPMs, operating leverage inherent in the platform will drive up adjusted EBITDA margins. As a result of strong trading conditions, the board now anticipates Boku’s performance for FY23 will be slightly ahead of its previous expectations.

The company reiterated its medium-term guidance as presented at this year’s capital markets day when it laid out its aspiration to double revenue and grow adjusted EBITDA margins to c 50% in the medium term. Based on the level of investment required to support account-to-account payments over the next couple of years, we assume that margins will increase modestly over FY23–25 before stepping up once this investment is complete.

Post period end, the company received the final $5.6m holdback payment from the sale of the Identity business to Twilio – this was already factored into our forecasts.

We have raised our TPV forecasts to reflect stronger growth driven by LPMs. We also increase our operating expense forecasts to reflect investment to support the build out of account-to-account payments. Overall, our adjusted EBITDA forecasts increase by 2.1% in FY23, 3.8% in FY24 and 0.2% in FY25.

Exhibit 3: Changes to forecasts

$'m

FY23e

FY23e

FY24e

FY24e

FY25e

FY25e

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenue

76.8

79.3

3.3%

24.3%

86.9

90.7

4.4%

14.4%

97.0

102.3

5.4%

12.7%

Gross profit

74.1

76.5

3.3%

23.5%

83.9

87.6

4.4%

14.4%

93.6

98.7

5.4%

12.7%

Gross margin

96.5%

96.5%

0.0%

-0.7%

96.5%

96.5%

0.0%

0.0%

96.5%

96.5%

0.0%

0.0%

Adjusted EBITDA

24.9

25.4

2.1%

24.1%

29.0

30.1

3.8%

18.4%

35.1

35.2

0.2%

17.1%

Adjusted EBITDA margin

32.4%

32.0%

-1.2%

-0.1%

33.3%

33.1%

-0.6%

1.1%

36.2%

34.4%

-4.9%

1.3%

Normalised operating profit

19.5

20.0

2.7%

26.7%

23.4

24.5

4.8%

22.2%

28.9

29.0

0.2%

18.4%

Normalised operating margin

25.4%

25.3%

-0.2%

0.5%

26.9%

27.0%

0.1%

1.7%

29.8%

28.3%

-1.5%

1.4%

Reported operating profit

12.3

8.9

-28.1%

95.5%

16.2

16.9

4.4%

90.6%

21.7

21.4

-1.5%

26.7%

Reported operating margin

16.1%

11.2%

-4.9%

4.1%

18.6%

18.6%

0.0%

7.4%

22.4%

20.9%

-1.5%

2.3%

Normalised PBT

19.0

20.8

9.5%

35.7%

22.9

25.4

11.1%

21.9%

28.4

29.9

5.2%

17.7%

Reported PBT

11.8

9.6

-18.4%

137.3%

15.7

17.8

13.6%

84.6%

21.2

22.3

5.1%

25.3%

Normalised net income

15.0

16.4

9.5%

34.0%

18.1

20.1

11.1%

21.9%

22.4

23.6

5.2%

17.7%

Reported net income

10.0

7.9

-21.2%

-72.6%

13.3

15.1

13.6%

91.2%

18.0

19.0

5.1%

25.3%

Normalised basic EPS ($)

0.050

0.055

9.5%

34.2%

0.060

0.067

11.1%

21.3%

0.074

0.078

5.2%

16.6%

Normalised diluted EPS ($)

0.049

0.053

9.5%

34.2%

0.058

0.065

11.1%

21.4%

0.072

0.075

5.2%

16.6%

Reported basic EPS ($)

0.034

0.027

-21.2%

-72.6%

0.045

0.051

13.6%

90.2%

0.060

0.063

5.1%

24.1%

Net debt/(cash)

(129.5)

(127.4)

-1.6%

27.9%

(157.5)

(159.8)

1.5%

25.5%

(189.4)

(195.2)

3.0%

22.1%

TPV ($bn)

10.21

10.42

2.1%

17.6%

11.42

11.74

2.8%

12.6%

12.62

12.98

2.8%

10.6%

Take rate

0.75%

0.76%

0.01%

0.04%

0.76%

0.77%

0.01%

0.01%

0.77%

0.79%

0.02%

0.02%

Source: Edison Investment Research

Exhibit 4: Financial summary

$'m

2017

2018

2019

2020

2021

2022*

2023e

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

24.4

35.3

50.1

56.4

62.1

63.8

79.3

90.7

102.3

Cost of Sales

(2.3)

(2.5)

(5.6)

(4.9)

(1.6)

(1.8)

(2.8)

(3.2)

(3.6)

Gross Profit

22.1

32.8

44.6

51.5

60.5

62.0

76.5

87.6

98.7

EBITDA

 

 

(2.3)

6.3

10.7

15.3

22.9

20.5

25.4

30.1

35.2

Normalised operating profit

 

 

(4.0)

4.8

4.5

11.6

18.6

15.8

20.0

24.5

29.0

Amortisation of acquired intangibles

(1.3)

(1.3)

(1.6)

(2.2)

(1.9)

(1.0)

(1.2)

(1.2)

(1.2)

Exceptionals

(2.2)

(1.4)

(0.3)

(21.1)

0.4

(5.1)

(3.0)

0.0

0.0

Share-based payments

(1.5)

(4.6)

(6.8)

(4.9)

(6.4)

(5.2)

(7.0)

(6.4)

(6.4)

Reported operating profit

(9.0)

(2.4)

(4.1)

(16.7)

10.6

4.5

8.9

16.9

21.4

Net Interest

(2.4)

(0.6)

(0.4)

(0.6)

(0.7)

(0.5)

0.8

0.9

0.9

Joint ventures & associates

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(17.1)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(6.4)

4.3

4.1

11.0

17.8

15.3

20.8

25.4

29.9

Profit Before Tax (reported)

 

 

(28.5)

(3.0)

(1.3)

(17.3)

9.9

4.1

9.6

17.8

22.3

Reported tax

(0.1)

(1.3)

1.7

(1.5)

1.9

0.2

(1.7)

(2.7)

(3.3)

Profit After Tax (norm)

(4.8)

3.4

3.2

8.8

14.3

12.3

16.4

20.1

23.6

Profit After Tax (reported)

(28.7)

(4.3)

0.4

(18.8)

11.8

4.3

7.9

15.1

19.0

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

(5.5)

24.6

0.0

0.0

0.0

Net income (normalised)

(4.8)

3.4

3.2

8.8

14.3

12.3

16.4

20.1

23.6

Net income (reported)

(28.7)

(4.3)

0.4

(18.8)

6.3

28.9

7.9

15.1

19.0

Basic ave. number of shares outstanding (m)

150.3

217.1

246.8

273.8

294.0

298.3

297.7

299.2

302.2

EPS - basic normalised ($)

 

 

(0.03)

0.02

0.01

0.03

0.05

0.04

0.06

0.07

0.08

EPS - diluted normalised ($)

 

 

(0.03)

0.02

0.01

0.03

0.05

0.04

0.05

0.06

0.08

EPS - basic reported ($)

 

 

(0.19)

(0.02)

0.00

(0.07)

0.02

0.10

0.03

0.05

0.06

Dividend ($)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

42.0

44.5

42.2

12.5

10.1

2.7

24.3

14.4

12.7

Gross Margin (%)

90.7

92.9

88.9

91.3

97.5

97.2

96.5

96.5

96.5

EBITDA Margin (%)

(9.5)

17.9

21.3

27.1

36.9

32.1

32.0

33.1

34.4

Normalised Operating Margin

(16.5)

13.7

9.0

20.5

30.0

24.8

25.3

27.0

28.3

BALANCE SHEET

Fixed Assets

 

 

26.9

23.0

52.2

69.8

71.9

78.6

80.0

80.3

80.6

Intangible Assets

25.8

22.5

46.8

65.6

63.1

56.2

56.7

57.2

57.3

Tangible Assets

0.4

0.3

3.5

3.8

5.7

4.4

4.8

5.3

5.9

Investments & other

0.7

0.3

1.8

0.5

3.1

18.0

18.5

17.9

17.5

Current Assets

 

 

79.3

84.0

89.2

155.2

145.0

212.4

255.8

310.8

366.6

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

59.1

51.7

53.6

92.5

82.6

90.1

111.3

133.8

154.3

Cash & cash equivalents

18.7

31.1

34.7

61.3

56.7

99.6

127.4

159.8

195.2

Other

1.4

1.3

0.9

1.4

5.8

22.8

17.2

17.2

17.2

Current Liabilities

 

 

(78.0)

(79.6)

(81.8)

(139.7)

(122.1)

(157.8)

(194.7)

(228.5)

(259.3)

Creditors

(75.5)

(77.4)

(78.0)

(136.8)

(119.6)

(156.3)

(193.2)

(227.0)

(257.8)

Tax and social security

0.0

0.0

0.0

0.0

0.0

(0.2)

(0.2)

(0.2)

(0.2)

Short term borrowings

(2.5)

(2.2)

(2.1)

(1.4)

(1.1)

0.0

0.0

0.0

0.0

Other

(0.0)

0.0

(1.7)

(1.4)

(1.3)

(1.3)

(1.3)

(1.3)

(1.3)

Long Term Liabilities

 

 

(0.2)

(0.8)

(2.6)

(13.6)

(12.3)

(8.7)

(9.9)

(9.9)

(9.9)

Long term borrowings

(0.0)

0.0

0.0

(10.8)

(6.7)

0.0

0.0

0.0

0.0

Other long term liabilities

(0.1)

(0.8)

(2.6)

(2.8)

(5.7)

(8.7)

(9.9)

(9.9)

(9.9)

Net Assets

 

 

28.0

26.6

57.0

71.8

82.4

124.5

131.1

152.7

178.0

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

28.0

26.6

57.0

71.8

82.4

124.5

131.1

152.7

178.0

CASH FLOW

Op Cash Flow before WC and tax

(2.3)

6.3

7.4

15.3

22.9

20.5

25.4

30.1

35.2

Working capital

1.0

7.2

3.0

20.1

(7.1)

27.9

15.7

11.2

10.4

Exceptional & other

(5.5)

0.2

(1.3)

(3.8)

(3.5)

1.6

(3.0)

0.0

0.0

Tax

0.0

(0.2)

(0.1)

(0.3)

(0.4)

(0.3)

(1.0)

(2.0)

(3.0)

Net operating cash flow

 

 

(6.8)

13.5

9.0

31.3

11.9

49.7

37.1

39.3

42.6

Capex

(0.3)

(0.3)

(2.1)

(3.4)

(5.8)

(5.3)

(5.7)

(6.1)

(6.4)

Acquisitions/disposals

0.0

(0.2)

(0.7)

(36.6)

0.0

26.5

5.6

0.0

0.0

Net interest

(0.9)

(0.6)

(0.4)

(1.0)

(0.6)

(0.2)

0.8

0.9

0.9

Equity financing

19.8

0.5

0.6

26.2

1.1

(1.4)

(8.3)

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

(1.1)

0.2

(1.5)

(2.6)

(6.1)

(12.7)

(1.7)

(1.7)

(1.7)

Net Cash Flow

10.6

13.1

4.857

13.8

0.5

56.6

27.8

32.4

35.4

Opening net debt/(cash)

 

 

9.9

(16.2)

(28.9)

(32.6)

(49.0)

(48.8)

(99.6)

(127.4)

(159.8)

FX

0.4

(0.5)

(1.1)

1.3

(0.6)

(5.6)

0.0

0.0

0.0

Other non-cash movements

15.1

(0.0)

(0.0)

1.2

(0.1)

(0.3)

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(16.2)

(28.9)

(32.6)

(49.0)

(48.8)

(99.6)

(127.4)

(159.8)

(195.2)

Source: Boku, Edison Investment Research. Note: *Restated.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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.

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 2023 Edison Investment Research Limited (Edison).

Australia

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Pharnext — Potential licensing deals could add confidence

Pharnext announced that it is in the final stages of signing a licensing agreement for its lead asset PXT3003. Management indicated that the non-binding bids for the asset are c €400m, with roughly 10% of potential total deal value to be received upfront. It expects to receive the first binding offers on 29 September and plans to conclude the transaction by the end of October. As a reminder, PXT3003 targets a rare genetic peripheral nerve disorder and is in the Phase III PREMIER trial with preliminary data expected in Q423. Although preliminary at this stage, the announcement should provide confidence in the upcoming data readout and regulatory events, given the potential partners likely had access to insight that is not available in the public domain. Furthermore, if a licensing deal is secured, the upfront payment (licensing fees) will likely add to the company’s revenue base (potentially in FY23/FY24) and could alleviate its dependency on the OCEANE BSA convertible debt facility, which we view as a primary overhang on the shares.

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