- Full-year adjusted pre-tax profit up 13 per cent to £11mn (8.9p)
- Annual dividend hiked 11 per cent to 7.25p
- 21 per cent growth in underlying net cash to £9.5mn
- 23 contract wins support another year of growth
Record annual results from Fonix Mobile (FNX:192p) highlight exactly why the Aim-traded technology group continues to outperform.
In the past five years, the group has more than doubled the value of the payments it processes by offering a mobile payments service that enables merchants to charge customers' mobile phone bills for products or services. Fonix’s technology effectively turns the mobile device into a cash register while offering convenience for consumers who use their mobile to make payments for services such as car parking, cinema tickets, pay-and-go gyms, gaming and public transport.
It’s also an important customer acquisition tool, acting as a product differentiator to traditional payment methods, such as credit cards. Most merchants use Fonix's payment solutions to reduce checkout abandonment and create incremental sales rather than cannibalising existing transactions from alternative payment methods such as Apple Pay and Google Pay.
This explains why Fonix has a near-100 per cent retention rate, having experienced no churn from major clients in the past seven years. It’s winning new business, too, signing up 23 new customers during the financial year to add to its 122 active customers.
Notable new awards include contracts to run interactive services for leading broadcasters ITV and Channel 4. Both accounts represent significant growth opportunities for Fonix and the group is targeting other UK broadcasters that are currently not harnessing the power of interactive services. Ongoing international growth is a further reason to expect another year of highly profitable growth.
Exploiting overseas opportunities
Fonix’s management adopts a disciplined sector-focused approach to growth, targeting large enterprise clients and key partnerships across its core markets and geographies. Media is by far the biggest sector, representing over 75 per cent of gross profits in the financial year. It has been used as the springboard for expansion into international markets, and successfully so. Overseas operations now account for more than 10 per cent of group gross profit.
In the past 12 months, Fonix launched new services with Bauer Ireland, RTÉ (Ireland's National Television and Radio Broadcaster) and Wireless Radio Ireland, along with several smaller new clients in the Republic of Ireland. All have been delivered with minimal customisation of Fonix’s cloud platform, which was connected to five new international mobile network operators and transacted with 16 per cent of the adult population in Ireland during the year.
Importantly, the success in Ireland has demonstrated Fonix’s ability to scale internationally, with minimal incremental cost. Relationships are being built in other overseas markets offering similar characteristics.
Highly cash generative
In the 12 months to 30 June 2023, Fonix delivered 13 per cent higher cash profit of £11.6mn and bumper free cash flow of £11mn, the latter being 6 per cent ahead of forecast. The 95 per cent cash conversion rate enabled the group to pay out £6.9mn of cash dividends and still boost net cash by a fifth to £9.4mn.
The modest capital expenditure requirements of a highly scalable technology platform that can process up to 5,000 transactions a second also explains why the board is able to pay out more than 80 per cent of net profit as dividends, a bull point when I initiated coverage of the shares, at 135p (Alpha Research: Bargain opportunity to play the mobile payments boom’, IC, 5 August 2021). Fonix has since paid out 12.4p a share of dividends, excluding the forthcoming payment of 4.89p a share in November.
For the new financial year, house broker Cavendish expects a raised payout of 7.8p a share from earnings per share (EPS) of 9.5p. This is based on pre-tax profit rising by 13 per cent to £12.4mn. On this basis, the shares are rated on a prospective price/earnings (PE) ratio of 20 and offer a 4.1 per cent forward dividend yield. That’s still not overly expensive for a growth company boasting a strong track record and one that is successfully expanding overseas. Buy.
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