Tyro Payments: Navigating a tough year relatively well

About the author:

Richard Coles
Author name:
By Richard Coles
Job title:
Senior Analyst
Date posted:
27 August 2021, 8:00 AM
Sectors Covered:
Insurance, Diversified Financials

  • Tyro Payments' (ASX:TYR) FY21 result was noisy with one-off costs (-A$14m) heavily impacting reported numbers. While the reported NPAT loss of -A$29m was comfortably below consensus (-A$12m), the normalised NPAT result (-A$10m) was more in-line.
  • We think the underlying result detail showed a relatively solid FY21 performance overall, with the highlight being TYR producing a normalised EBITDA of +A$14m, well up on the pcp (-A$4m).
  • We upgrade our TYR FY22F EPS by >10% (off a low base), while FY23F EPS is largely unchanged in absolute terms. Our earnings changes reflect a lift in sales and EBITDA margin assumptions. Our PT is largely unchanged at (login to view).
  • We continue to like the TYR growth story, with its medium-term potential for further market share gains and structural payment tailwinds key to our investment thesis. We maintain our ADD recommendation.

Event summary

TYR’s FY21 result was noisy with one-off costs (-A$14m) heavily impacting reported numbers. While the reported NPAT loss of -A$29m was below consensus (-A$12m), the normalised NPAT result (-A$10m) was more in-line.

We think the underlying result detail showed a relatively solid FY21 performance overall, with the highlight being TYR producing an underlying EBITDA of A$14m, well up on the pcp (-A$4m).

Outlook commentary was relatively broad pointing to both CV-19 challenges and the benefits of the Bendigo Bank Alliance. TYR said transaction volumes as at August YTD were tracking at +24% on pcp.

The good

FY21 growth in key metrics was relatively robust, e.g. transaction value (A$25.5bn) was +26% on pcp, and merchants (58k) grew 81% on pcp assisted by the Bendigo Bank Alliance.

Recent merchant application trends look strong with May and June levels (1.2k1.4k per month) comfortably above the FY21 average level (~A$1k). Loan originations also picked up in 4QFY21 with A$20m of originations in the last quarter vs A$26m for FY21 in total.

TYR exhibited strong operating leverage with FY21 operating costs of +8% on pcp comparing to +28% gross profit growth on pcp.

The underlying EBITDA result (A$14m) represented a large positive delta on the pcp (-A$4m), with TYR’s now positive EBITDA level de-risking the story in our view.

Slippage in churn rates tied to TYR’s outage (churn rate = 11.3% vs 11.7% in FY20) remains contained. 85% of merchant claims (re the outage) have now been settled.

TYR has a strong balance sheet with liquidity of A$178m (cash and investments) and no debt.

Things to keep an eye on

TYR’s EBITDA result did benefit from a favourable business mix due to CV-19 (greater use of debit cards and less international card usage). While this benefit will likely continue near term there is still some uncertainty as to whether it is permanent, in our view.

TYR has pointed to some necessary employee expense growth in FY22 tied to staff pay rises (~+5% on average since January) and noting additional IT staff hires are needed.

CV-19 is impacting FY22 transaction volumes with August volumes (+24% on pcp) below where they would be in a normal environment, given the benefits of the Bendigo Bank Alliance.

Changes to forecasts and investment view

We upgrade TYR FY22 EPS by >10% (off a low base), while FY23F is largely unchanged in absolute terms. Our earnings changes reflect a lift in sales and EBITDA margin assumptions going forward. Our price target is largely unchanged at (login to view).

We continue to like the TYR growth story, with its medium-term potential for further market share gains and structural payment tailwinds key to our investment thesis. We maintain our Add recommendation.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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