Network International profits from Middle Eastern growth

The main advantage for payments company Network International Holdings (NETW) is that 66 per cent of its revenue is generated in the Middle East. Unlike Europe, these countries are not concerned about the rising price of natural gas. In 2022 the gross domestic product (GDP) of the United Arab Emirates increased 7.6 per cent while Saudi Arabia’s rose 5.5 per cent.  

Payments companies are inherently tied to the fortunes of the wider economy and this growth has benefited Network International. Its total revenue for the year increased by 24.5 per cent to $438mn with management praising “a buoyant UAE economy and ongoing strength in consumer confidence”.

All this top-line growth is falling through to profits and cash. Underlying cash profit (Ebitda) rose 24.5 per cent, giving a margin of 40.7 per cent, an improvement of 240 basis points compared with last year. Promisingly, underlying free cash flow also rose 32.3 per cent to $82mn.

The rest of the business operates in Africa, which management says might see slower growth in the coming year. In this context, this means “high teens” constant currency revenue growth, which would be a slight slowdown from 2022. However, the company expects margins to continue to improve.

Broker Peel Hunt agrees, forecasting that the cash profit margin will improve to 41.5 per cent, which is impressive alongside double-digit sales growth. The broker expects adjusted EPS to rise to 22.3ȼ in 2024, giving a 2024 price/earnings ratio of 13.9. A low capital payments company with exposure to energy-abundant economies looks a good bet at this price. Move to buy.

Last IC View: Hold, 224p, 11 Aug 2022