Sparks

Pathos’s H126 results confirm encouraging H1 performance and that the acceleration anticipated for H2 is now materialising. Revenue rose 14% and adjusted EBITDA 36%, while July delivered record revenue and trading through August remained significantly ahead year-on-year. Management now expects FY26 performance to be in line with or slightly ahead of market expectations. We continue to see a clear valuation disconnect: Pathos is an AI-enabled growth company addressing a global SME opportunity with operational leverage potential, currently rated more like a value stock.

The headline H1 figures were largely pre-announced in July, with revenue up 14% to $7.3m and adjusted EBITDA of $1.73m, 36% ahead y-o-y, lifting the margin to 23.7% from 19.8%. More importantly, July delivered record revenue and trading through August was significantly ahead year-on-year, prompting management to guide to meeting or being slightly ahead of FY26 market expectations of $14.0m in revenue and $4.0m in adjusted EBITDA.

Cash performance provides further evidence of improving revenue quality and operational leverage. Customer receipts increased to $7.9m from $4.3m, while bad-debt expense fell sharply to $0.28m from $1.55m following improvements to credit control and collection processes. Operating cash generation of $1.74m was effectively in line with adjusted EBITDA, despite continued investment in the growth platform.

This continues to support the valuation disconnect highlighted in our recent note. Pathos is an AI-enabled growth company addressing a global market of more than 400m SMEs, with improving revenue quality and significant potential for technology-driven operational leverage, yet it remains rated more like a value company. At the time of our note, consensus implied c 5x FY26 EV/adjusted EBITDA and c 10x adjusted P/E, falling further in FY27. Continued evidence that its H1 investments can drive faster growth, margin expansion and cash conversion should strengthen the case for a re-rating.