- First-half pre-tax profit up 25 per cent to £7.4mn
- Underlying cash up a third to £11.2mn
Record interim results from Fonix Mobile (FNX:255p) highlight why the Aim-traded technology group’s shares have delivered a 100 per cent total return since I initiated coverage (Alpha Research: Bargain opportunity to play the mobile payments boom’, IC, 5 August 2021).
Fonix’s main activity is a mobile payments service that enables merchants to charge customers for products or services (mobile ticketing, gaming, parking, dating, charity donations), turning the mobile device into a cash register while offering convenience for consumers.
The payment platform is highly scaleable (it can process up to 5,000 transactions per second) and acts as a customer acquisition tool for clients. Fonix also differentiates itself from traditional payment methods, such as credit cards or ApplePay and Google Pay, by offering an alternative payment method to consumers who may otherwise forgo purchasing.
The payment platform continues to prove popular with corporate clients, especially in the media sector, which accounts for 80 per cent of Fonix’s gross profit. Underpinned by a 100 per cent client retention rate, and a record month of commercial trading in both the UK and overseas in December 2023, the total payment value (TPV) of mobile payments increased by 15 per cent to £158mn in the latest six-month period. House broker Cavendish pencils in TPV of £298mn for the full year, up from £268mn in 2023-24.
Fonix now has a market share exceeding 30 per cent of the UK phone-paid services market, making it the largest SMS and carrier billing mobile aggregator in the country. The group is also successfully expanding into international markets, which now generate more than 10 per cent of gross profit. For instance, Fonix has become the market leader in interactive services in Ireland, having launched services less than 18 months ago with Bauer Ireland, RTÉ (Ireland's National Television and Radio Broadcaster) and Wireless Radio Ireland, along with several smaller clients in the country. The roll-out in Ireland will be used as a blueprint for expansion into other well-regulated overseas territories.
High cash generation enhances cash returns
Importantly, Fonix remains highly cash generative, a reflection of both the modest capital expenditure requirements of a highly scalable technology platform and the operational leverage of the business. This explains why the board can pay out more than 80 per cent of net profit as dividends. For the 12 months to 30 June 2024, analysts at Cavendish expect a payout per share of 7.8p to be covered by free cash flow of 9.1p and earnings per share of 9.7p. Furthermore, with underlying net cash rising a third to £11.2mn (11.2p), the directors are considering plans to return surplus cash to shareholders either through a special dividend or share buy-backs.
True, the shares are no longer a bargain on a forward price/earnings ratio of 26 and offering a prospective dividend yield of 3.1 per cent. However, forecasts look conservative, and the potential for new contract wins and further international launches should attract investor interest in the £255mn market capitalisation company. Buy.
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