I had an informative results call today with the directors of Aim-traded Bango (BGO:153p), a provider of a state-of-the-art mobile payment platform enabling smartphone users to charge purchases made in app stores straight to their mobile phone account. The £106m market-cap company’s relationships also include ones with Amazon Prime Video across the US, UK and India, and leading US music streaming service Pandora to enable mobile customers to pay for their subscriptions using the Bango payment platform.
Importantly, finance director Rachel Elias-Jones confirmed that end-user spend (EUS) processed through Bango’s payment platform, and from which Bango takes a cut, is on course to achieve house broker Cenkos Securities' target of £592m for the full year, up from £220m in the first half of 2018, and £271m for the whole of 2017. This implies an exit annualised run rate in excess of £900m. This part of the business is already profitable, and is set to become even more so in the coming months because chief executive Ray Anderson says that Bango’s “nearest to arrival pipeline of EUS is worth $4bn [most contracts are in the range between $100m and $400m (£303m), and a couple are over $1bn] and has been in principle approved by clients internally with technical due diligence complete.” Expect newsflow from the company on some transformational contracts in the coming months.
The directors also confirmed that their data monetisation business is expected to be cash positive within 12 months, highlighting the scope for another valuable income stream by offering both mobile operators and merchants information about users demographics, location, device history and historic spending habits so that they can market their services in a more sophisticated manner. Admittedly, Bango would already be profitable if it hadn’t invested in the data business, but the company is going to be even more profitable in the future as a result of doing so. Indeed, even if only a fraction of the $4bn near-term EUS pipeline enter into data service agreements, it’s not difficult to model a scenario where revenues and profits could ramp up.
The key point to note is that having tested the payment platform to process £5bn of transactions a year, and with £5.8m cash in the bank, Bango is highly operationally geared to rising EUS. To put this into some perspective, Cenkos Securities predicts a pre-tax profit of £5.6m and EPS of 8.1p based on EUS of £1.3bn generating £15.3m of revenue in 2019. And with operational costs held in check, a high proportion of cash profits of £8.4m in 2019 will be converted into cash, which is why net funds are forecast to more than double to £12.3m – a sum worth 17.5p a share – by the end of 2019. On this basis, the cash-adjusted forward PE ratio is only 17, hardly expensive for a fintech business that has valuable relationships with Google and Amazon, has a smart strategy in place to monetise data capture, and is highly operationally geared to rising EUS. Moreover, Mr Anderson points out that Bango rarely faces competition from larger rival Boku (BKU:182p) in the markets they address, suggesting space for both fast-growing operators.
So, with fourth-quarter newsflow on contract wins set to instil confidence in Bango achieving Cenkos’ 2019 numbers, I remain positive on the investment case. Please note that I first recommended buying the shares at 93p ('Bang on the money', 26 September 2016), and last advised buying at 160p ahead of today’s results (‘Bango in bargain territory’, 23 August 2018). Buy.
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