- First half pre-tax profit up 13 per cent to £5.9mn
- Underlying free cash flow of £5.5mn (5.5p a share)
- Interim dividend per share hiked 18 per cent to 2.36p covered two times by EPS of 4.9p
- Partnership with ITV extended
Cash-generative UK technology company Fonix Mobile (FNX:200p) delivered bumper results that make the recent profit-taking worth exploiting. Having run up from the 170p level when I covered the annual results (‘Tapping into the mobile payments boom’, 22 September 2022) to a record high of 245p earlier this month, the subsequent share price weakness is at odds with the strong fundamentals driving the business.
Fonix’s main activity is a mobile payments service that enables merchants to charge customers' mobile phone bills for products or services, turning the mobile device into a cash register while offering convenience for consumers. The payment platform is highly scalable (it can process up to 5,000 transactions per second following a recent infrastructure upgrade) and acts as an important customer acquisition tool for clients, too. That’s because Fonix differentiates itself from traditional payment methods, such as credit cards or ApplePay, by offering an alternative payment method to consumers who may otherwise forgo purchasing. The payment platform is proving attractive to corporate clients – 12 new customers were added in the latest six-month period – seeking an alternative to traditional cash transactions, which have a high cash processing cost.
Since the period end, ITV has extended its commercial partnership with Fonix to include SMS billing payments, alongside the existing relationship for carrier billing and charity services, across the ITV competition portal. Over time, Fonix will support all competition interactivity for ITV’s on-air formats including Dancing on Ice, Good Morning Britain, ITV Sport, and Love Island. International growth is a core investment strategy, too. Since launching services with Bauer Ireland, the group has launched services with a second leading media organisation and now aims to be the leading payment partner for all broadcasters in the region within 18 months.
Strong financial performance
In terms of divisional performance, Fonix’s mobile payment segment increased its gross profit contribution by 13 per cent to £6.6mn (84 per cent of group total), while the smaller mobile messaging business contributed 18 per cent higher gross profit of £0.9mn, buoyed by demand from existing customers and adoption by new clients. True, total payment value was flat year on year, a reflection mainly of timing changes to some annual events in the low-margin charity segment. However, the growth engine of the core business remains robust, hence why cash generation was as impressive as ever.
Underlying cash increased a third to £8.4mn (8.4p a share) year on year and net underlying free cash flow (FCF) of £5.5mn supported an eye-catching 18 per cent hike in the interim payout to 2.36p at a cash cost of £2.36mn. House broker FinnCap expects more of the same for the remainder of the financial year and beyond, pencilling in 13 per cent annualised growth in pre-tax profit from £9.7mn to £12.4mn over the 2022 to 2024 forecast period (30 June year-end). On this basis, expect earnings per share (EPS) of 8.8p (2023) and 9.5p (2024) to support dividend per share of 7.1p (2023) and 7.8p (2024), funded from projected net cash of £17.5mn (17.5p) and £20mn (20p), respectively. FCF per share could hit almost 9p in the next financial year, too.
Fonix shares have produced a total return (TR) of 50 per cent since I initiated coverage (Alpha Research: Bargain opportunity to play the mobile payments boom’, IC, 5 August 2021), during which time the FTSE Aim All-Share TR index has shed a third of its value. Rated on a forward PE ratio of 21 and offering a prospective dividend yield of 3.9 per cent, this is a repeat buying opportunity. Buy.
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