- Major agreement to provide carrier billing and subscription services to leading multinational technology group
- Potential to be a major contributor of revenue over the medium term
- Separate agreement signed with TelevistaUnivision
Aim-traded Bango (BGO:164p), a provider of a state-of-the-art mobile payment platform enabling smartphone users to charge purchases made in app stores straight to their mobile phone account, has signed what should be a transformational agreement with an undisclosed multinational technology group.
House broker Liberum Capital and Berenberg believe the contract is with Apple, the only remaining major global tech leader that hasn’t been using Bango’s technology. Bango already partners with Google Play, Microsoft Windows Apps, Facebook App Centre, Amazon App store and Samsung Galaxy Apps. Liberum understand that Bango will be one of only two providers for carrier billing services for Apple's app store payments and subscription services globally. To put the scale of the opportunity into some perspective, Liberum analysts Ciaran Donnelly and William Larwood estimate Apple’s app store generated gross app revenue of $85bn (£69.6bn) last year, having increased at a compound annual growth rate (CAGR) of 22 per cent since 2017.
Interestingly, they believe that the greater opportunity for Bango could be on bundling and subscription services, an area in which the UK group is establishing a dominant position in third-party over-the-top (OTT) services by helping mobile network operators and merchants boost subscription and retention rates. That’s because the new agreement will add to Bango’s vast ecosystem of merchants, users and routes to provide a halo effect across the entire business.
It will also benefit Bango Audiences, the part of the business that combines payment data from Bango connections and third-party data sources (such as credit card processors) to create bespoke user groups that app developers target with their marketing campaigns. The more payment data Bango processes, the greater the value in the data sets it can offer app developers, which in turn supports growth in this business. To capitalise on this growth trend, Bango Audiences takes a slice of the marketing campaign spend, rather than a fixed fee.
Implementation of the agreement will take several months to become operational, so Bango’s management will only be able to quantify the full impact in the final quarter of 2022 and the implications on 2023 guidance. It’s clearly going to be very positive.
Furthermore, Bango has signed an agreement with TelevisaUnivision, which will license the Bango Platform to enable its upcoming OTT subscription offering, ViX+, to be offered and bundled in real-time by telcos and distribution partners, including mobile wallet providers and retailers, on a worldwide basis. Univision Network is the most watched Spanish programming network in the US, reaching 97 per cent of Hispanic households.
In recent months, Bango has signed deals with internet security firm McAfee and mobile giant T-Mobile, too, highlighting the value in Bango’s technology offering to merchants looking to attract new customers and cutting the time-to-market in the process.
Admittedly, Bango’s share price is 9 per cent lower than when I covered the annual results (‘An app store winner’, 8 March 2022). The unwarranted de-rating is due to the tech sector rout, albeit the price is still up 76 per cent since I initiated coverage ('Bang on the money', 26 September 2016). There is obvious value on offer.
Ignoring potential for earnings upgrades to both 2023 and 2024 estimates to reflect the benefits of the contract wins since March, Liberum currently expects full-year adjusted pre-tax profit (before amortisation of intangible assets) to increase 50 per cent to $5.1mn on revenue of $26.1mn, rising to $8.2mn on revenue of $34.4mn in 2023. The higher growth rate in profits than revenue reflects the fact that a high proportion of incremental gross profit is converted to pre-tax profit in a positive sales cycle given that Bango has a relatively fixed cost base and earns a gross profit margin of 94 per cent. Indeed, Liberum expects pre-tax profit of $14.3mn on revenue of $44.7mn in 2024, and is pencilling in closing net cash of $17.4mn (15p a share) that year, too.
On this basis, Bango is expected to deliver 33 per cent CAGR in underlying earnings per share (EPS) over a three-year forecast period based on adjusted EPS rising from 7¢ to 16.6¢ (13.6p). The recent contract wins clearly de-risk these profit projections. Trading on forward price/earnings (PE) ratios of 20 (2023) and 12 (2024), I maintain my 260p target price. Buy.
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