- End user spend up 16 per cent to $2.09bn
- First half revenue up 9 per cent to $10.8mn
- Cash profit of $2.85mn better than analyst estimates
- $7mn of synergies realised from NTT Docomo acquisition within first four weeks
Aim-traded technology group Bango (BGO:195p) has reported better than expected first half results and is already generating material synergies from last month’s acquisition, the global payments business of NTT Docomo, a Japanese mobile network operator with 85mn subscribers (‘Targeting lowly rated technology shares’, 29 August 2022). Bango is 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, a business with a global footprint.
In the first four weeks since the deal completed, the group has delivered a third of the planned $21mn (£18mn) in annualised cost synergies. The acquisition has added new merchants (Tidal, Discovery, Paramount+ and Jetstar to name but a few), expanded Bango's footprint in carrier billing for physical goods, and scaled up its merchant user base for upselling data analytics services. It is generating revenue synergies, too, as Bango has just signed an agreement with Moviestar Mexico, a subsidiary of Telefonica, to streamline payments through direct carrier billing, thus increasing adoption of Moviestar’s digital content and services.
In the first half, Bango added 24 new merchants to its client base, a record number, including a leading [undisclosed] multi-national technology group that analysts believe to be Apple (‘A smart way to profit from Apple’s growth’, 29 June 2022). Bango already partners with Google Play, Microsoft Windows Apps, Facebook App Centre, Amazon app store and Samsung Galaxy Apps, but Apple was the only major tech giant that didn’t use Bango’s technology.
Apple’s app store generated gross app revenue of $85bn (£77.3bn) in 2021, so Bango could be in select company, being one of only two providers for carrier billing services for Apple's app store payments and subscription services globally. The group also landed a contract with TelevisaUnivision, the most watched Spanish programming network in the US, licensing the Bango Platform to enable its new OTT subscription service to be offered and bundled in real-time by telcos and distribution partners.
The group continues to attract new customers to 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. New customers signed up this year include Marvel games developer Kabam, Adidas and Hard Rock. The addition of T-Mobile in the US means that Bango now powers the majority of telco subscription bundles in the country, having already signed up Verizon. The total addressable market is more than 250mn customers across both telecom operators.
Although first half revenue increased nine per cent to $10.8mn, analysts at house broker Liberum believe the underlying growth rate was nearer 17 to 20 per cent, the difference reflecting the negative translational impact of US dollar strength on sales in Japan and Eurozone. Also, Amazon Prime Day was in July this year, but took place in June 2021, so the reported result was even better than it looks. In any case, adjusted cash profit of $2.85mn was still 10 per cent better than Liberum had predicted, the flat profit performance year-on-year reflecting ongoing investment in sales, marketing and research and development.
Liberum are maintaining forecasts that point towards current year underlying cash profit dipping from $6.2mn to $4.2mn due to the costs of the DOCOMO integration, before rising to $12.3mn (2023) and $29.7mn (2024) when the full benefit of the acquisition is realised. On this basis, expect adjusted pre-tax profit of $0.7mn, $8mn and $24.5mn over the three-year forecast period to produce underlying earnings per share (EPS) of 1¢, 10¢ and 26.2¢ (23.8p). At current exchange rates, this implies the shares are priced on price/earnings (PE) ratios of 21 (2023) and eight (2024).
Bango’s share price has kicked on by 5.5 per cent and 19 per cent, respectively, in a falling market since my June and August updates, and is more than double my original 93p entry point ('Bang on the money', 26 September 2016). Liberum’s target price of 345p implies a 2024 PE ratio of 14, a reasonable rating in my view assuming Bango achieves the brokerage’s profit projections. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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