WAG Payment exposed to European recession

European truck payment and mobility platform WAG Payment Solutions (WPS) is facing a host of macroeconomic challenges. The software enables truckers to pay for fuel, tolls and taxes as well as providing telematics analytics. The problem is that Europe is about to go through a recession because of the energy crisis. This is bad news for trucking companies and bad news for WAG.

The numbers for the six months to June were solid. Net energy and service sales increased 19.4 per cent and WAG increased its customers by 13 per cent to 16,523. However, due to rising inflation related costs and the dilutive nature of the acquisition of WebEye, the cash profit margin dropped 5.2 percentage points to 40.2 per cent.

Net cash from operating activities quadrupled to over €16mn (£13.8mn) but the growing amount of receivables will attract attention. Trade and other receivables increased by €131mn to €432mn. This is in part because of rising fuel costs which WAG buys and then provides to customers. Higher prices means more on the balance sheet.

The issue here is if customers go bankrupt the revenue will never actually turn into cash and the chance of customer bankruptcies seems high. WAG has 16,532 customers and between them they have 87,626 trucks. On average they have only five trucks each which means they are pretty small businesses. Many could be wiped out by a European recession.

Broker Numis sees the customer growth and 40 per cent cash profit margin in the face of challenging headwinds as a positive. The broker is forecasting a 2023 EPS of 8p, which gives a  2023 PE multiple  13.3. This looks a little optimistic to us given the mid-term prospect for Europe. Hold.

Last IC View: Hold, 94p, 24 Mar 2022