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Bango: solid update, sluggish shares

End user spend at the mobile payments group more than doubled during the first half
July 25, 2018

On the face of it, Bango's (BGO) first-half update looked like it should have been welcomed by investors – end user spend (EUS) soared 139 per cent year on year to £220m. And second-half EUS is expected to be significantly ahead of the first, meaning it should more than double for the fourth year in a row. In turn, sales growth continues as expected. 

IC TIP: Hold at 157p

Yet the price dipped again on this update – perhaps because of the reminder that such EUS momentum necessitates investment. Shares in the mobile payments group have fallen over 41 per cent during the 12 months. Indeed, Bango has priced some recent contracts to “incentivize” the shift of EUS volumes away from other channels and towards its own from 2019-20. Higher EUS volumes should bring in more EUS data, improving marketing effectiveness for customers and generating higher revenues for Bango itself. But, assuming the initial pricing for this EUS will be “slightly lower” for such higher-volume deals, house broker Cenkos has reduced its gross and cash profit forecasts for 2018 – but simultaneously lifted EUS and profit estimates for 2019.

Administrative expenses also rose slightly to reflect marketing spend in Asia and the acceleration of launches by mobile operators in Latin America after striking a direct carrier billing deal with Chilean carrier Entel for Google Play. Not forgetting the integration of data management business Audiens, which was acquired in January via a £5m share placing, and which has traded in line with expectations so far. Bango’s other operating costs remained unchanged. The group says it’s fully funded to reach profitability, with cash of £5.8m in June against £4.8m in December. The group says it has no need or desire to raise any further capital, as it did in January. 

But some will be questioning the timeline for profitability. Cenkos is forecasting £1m in cash profits in 2018, with a corresponding £0.9m pre-tax loss – followed by a £5.6m pre-tax profit in 2019. However, in March it expected £2.8m in cash profits for this year.