I had an informative results call this morning with the directors of Aim-traded Bango (BGO:90p), 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.
It’s a company I know well, having initiated coverage at 93p ('Bang on the money', 26 Sep 2016), and reiterated that buy advice after the company launched Bango Marketplace, a new product that boosts user acquisition and revenues for app developers and opens up new revenue streams for mobile network operators ('Bango Marketplace a data winner', 25 Feb 2019).
Having doubled total end-user spend (EUS) for the fourth consecutive year to £558m, and exited 2018 at an annualised EUS run rate of £772m, chief executive Ray Anderson is confident that his company can at least book another £700m of additional EUS in the current year as analysts at Cenkos Securities predict. The transactional business is already profitable and generated a revenue margin of 0.94 per cent in 2018.
I would stress that Mr Anderson doesn’t expect the transactional margin earned to be materially different on the £700m of incremental forecast sales, albeit Bango would offer a discount to lock in a massive contract win. Ahead of a corporate presentation, he said the near-term pipeline of EUS spend being targeted from 45 potential customers is now worth $6bn (£4.5bn).
However, he also says that the company “isn’t going to take on business for nothing”. Both he and finance director Carolyn Rand strongly believe that house broker Cenkos Securities has erred by predicting that Bango will only generate an additional £3.6m of transactional revenue on the £700m incremental EUS spend this year. That’s worth noting because Cenkos reined back its 2019 pre-tax profit estimate from £4.4m to £200,000 on forecast revenues of £12.5m for 2019, of which data sales account for 30 per cent of the mix, based on a lower transactional margin. Mr Anderson made it very clear to me that the company isn’t going to halve its margin, and for that matter doesn’t need to. Trading since the year-end is in line with expectations that EUS can double again to £1.26bn and at a margin run rate close to that earned in 2018.
The bottom line is that Cenkos is going to have to raise its forecasts if, as I strongly expect, Bango continues to win new business at close to last year’s sales margin. On £700m plus of additional EUS spend, there is potential for a huge earnings upgrade. Buy.
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