- Revenue rises 62 per cent to $46.1mn
- Adjusted cash profit up 29 per cent to $6.4mn
- Net debt of $3.9mn
- Strong start to 2024
Aim-traded Bango (BGO:126p), a mobile payment platform provider, downgraded earnings guidance in late January 2024, so the 2023 annual results had been well flagged (‘Investors are wrong to ditch Bango, 22 January 2024).
Although the payments business traded in line with expectations, longer customer launch cycles resulted in lower revenue recognition, and revenue from Bango Audience insights and data analytics services fell short, too. In addition, annual recurring revenue (ARR) of $8.8mn from the Digital Vending Machine (DVM) service, which enables customers of telecom companies to manage and pay for all their subscriptions in a single place and on one bill, missed management’s $10mn target.
Moreover, having acquired the loss-making global payments business of NTT Docomo and entered a long-term platform deal to provide payment services in Japan for the world’s largest merchants, Bango has been taking costs out of that business to turn it profitable. To date, $21mn of cost synergies have been realised, but unexpected additional costs ($2mn in 2023 and $1mn in 2024) dented profit growth. This largely explains why group cash profit only increased 29 per cent to $6.4mn in 2023, well short of analysts’ $11mn forecasts prior to the January profit warning.
Reassuringly, Bango’s management “is confident there will be no such [negative] surprises in 2024”, a view that has credibility given the strong start to 2024 and one that sparked a 17 per cent share price rally post results.
Re-rating potential
The launch of Bango’s third Tier 1 US telecom customer in March 2024 has added $2mn to ARR and increased the run rate to $11mn, up from $5mn at the start of 2023. In the first quarter of 2024, Bango booked four new DVM client wins, having doubled the number of DVM contracted customers to 18 last year, and has seven times more opportunities in the sales pipeline than entering 2023. One of its customers is a leading European telecom operator that extended its DVM contract for another three years. The award has a minimum contract value of $1.5mn.
Furthermore, management disclosed that 33 more content providers have signed up to offer their subscription services in the Bango DVM, taking the total to 93, highlighting the value proposition it offers as part of their subscriber acquisition strategies. In fact, analysts estimate that 20 per cent of all telecom subscriptions are activated by consumers through these offers and bundles, a share that is expected to rise sharply in the coming years as streaming video on demand and sporting events become even more popular with customers. It is also providing Bango’s corporate clients the opportunity to upsell additional services to their own customers.
Reflecting the strong start to the new financial year, Singer Capital Markets predict a step change in profitability, pencilling in 162 per cent growth in cash profit to $16.8mn on 16 per cent higher annual revenue of $53.5mn. The forecast doubling of cash profit margin to 31 per cent reflects a four percentage point improvement in gross margin to 90 per cent), the benefit of cost savings and the operational leverage of the business.
Moreover, with Bang forecast to be cash flow positive in 2024, Singer have reduced the interest charge in their financial models and raised their 2024 pre-tax profit estimate by 8 per cent to $5.7mn, thus reversing last year’s $7.8mn pre-tax loss. On this basis, expect earnings per share (EPS) of 7.3c (5.8p).
Rated on seven times 2024 cash profit estimates to enterprise valuation, and given the upbeat start to this year’s trading, Bango’s share price rally is likely to gather momentum. Buy.
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