Wise benefits from increased migration

Payments company Wise (WISE) is a potential beneficiary of increasing global migration. Wars, climate change and political instability are displacing people from their homes and the more people that live away from their families, the more people need to send money across borders.

Wise says there are close to 300mn such migrants and currently the company has just 5.2mn customers. With such a large addressable market it is unsurprising that Wise is growing at speed. The company has 40 per cent more personal customers than this time last year and 31 per cent more business customers. These customers are also transferring more with personal volumes up 7 per cent and businesses increasing 18 per cent.

The increase in customer numbers and transaction volume pushed adjusted cash profit (Ebida) up 52 per cent. The adjusted cash profit margin was 22 per cent. This is impressive profitability given the speed of top-line growth but the margin did slip from 23.8 per cent this time last year. Administrative expenses increase 41 per cent because of increased spend on employees, marketing and R&D.

Management is expecting cash profit margins to settle around 20 per cent but the concern for Wise is that competition will become tougher. Wise’s product relies on the fact it can offer low fees. If more competitors enter the market it will force Wise to bring down fees which will push down margins.

Until then, a company with this much growth and cash conversion of 85 per cent will command a hefty price. FactSet consensus expects EPS to rise to 14p in FY 2024 but that would still leave it trading on a forward PE ratio of 51.2. More migrants could mean more potential business, but that opportunity is starting to look quite expensive. We move to hold.

Last IC View: Buy, 355p, 28 June 2022