Wise's positive words on results day

There will be few companies during the current results season that will benefit as clearly, and abundantly, from higher interest rates as international payments specialist Wise (WISE). The company enjoyed reported revenue growth of 25 per cent during the half as customer acquisitions brought higher volumes and account fees. This excludes the extraordinary earnings from interest income net of customer benefits, which was £158mn for the half, compared with just £18.7mn for the same period in 2022. In other words, Wise is earning the mother of all windfalls from central bank monetary policy.

This fed through to the company’s free cash flow line, with a conversion rate of 95 per cent yielding £229mn, compared with £78mn last time. And margins should continue to remain high in line with prevailing interest rates; management reckons Wise achieves a structurally higher operating margin of 20 per cent or more if interest rates stay above 1 per cent. In these results, Wise managed an operating margin of nearly 37 per cent, with the qualification that its patchwork of regulatory licences means that not all interest-sharing was achieved in the half. Had this been the case, the operating margin would have been nearer 29 per cent. The company also reported lower-than-expected administration costs.

Despite its sometimes overblown sense of self, Wise is a company that manages to carry out its core functions with impressive ease and far more cost-effectively than traditional financial rivals, which is why it is maintaining its dominant market position. Broker Numis values the shares at a price/earnings ratio of 29 times for 2024, which is hardly cheap, but impressive cash flows should continue. Buy.

Last IC View: Buy, 613p, 27 Jun 2023