Bango (BGO) delivered what was ostensibly good news this week. Not only has the mobile payments company partnered with Netflix (US:NFLX) in Mexico, enabling 12m Netflix users in the country to charge their subscriptions to their mobile phone bills, but it also gave an encouraging trading update. End-user spend more than doubled from £132m in 2016 to £271m in 2017. Plus, cash remained strong at £4.8m versus £5.7m a year earlier.
Even so, the market reaction implied disappointment. The shares fell by more than a tenth before recovering slightly. Perhaps some had hoped for outperformance and were dismayed by the group’s in-line predictions. Some shareholders may simply have chosen to take profits after a 200 per cent share price gain for the stock over the past year.
Alternatively, a lack of reference to profitability may have triggered concern. Despite the growing demand for Bango’s products, the company has not yet turned a profit. And analysts at Cenkos forecast EPS of 2.1p in 2018, meaning Bango’s shares are trading on an eye-watering forward multiple of 113 times – a lot to ask of investors.
Even so, deals with giants including Netflix and Amazon Japan do inspire confidence in Bango’s future potential. And we learnt in November that the company would expand its presence in South Korea “to support the growth ambitions of key partners”. Within this same update, chief executive Ray Anderson noted Bango was cash profit positive on a run-rate basis entering November 2017.
As previously noted, we’re encouraged by the recent admission of Boku (BOKU) to the Alternative Investment Market (Aim), where it keeps Bango company in its provision of direct carrier billing services. For now, we think each appears to legitimise the other’s business case. Since its IPO on 20 November, Boku has announced an agreement with EE – the UK’s largest mobile network operator – to provide billing support for purchases made via Google Play. Later in December, another agreement marked the addition of carrier billing to EE’s online accessories store.
On 2 January, it was announced that Boku non-executive director Keith Butcher had purchased 100,000 shares worth £73,000. These are all positive signs. But Boku was still lossmaking as at 30 June 2017, according to its Aim admission document. That said, while there are no profits or analyst forecasts to speak of, 82p per share does not look steep. Again, investors must look to deal momentum to help gauge future earnings potential.
