Tyro Payments: Gross profit underwhelms during update
About the author:
- Author name:
- By Richard Coles
- Job title:
- Senior Analyst
- Date posted:
- 04 November 2021, 8:30 AM
- Sectors Covered:
- Insurance, Diversified Financials
- Tyro Payments (ASX:TYR) has provided a trading update as part of its AGM.
- The stock fell heavily on an apparent large gap between transaction growth and gross profit (GP) growth YTD to October (25% vs 14% on pcp). However, management later clarified this gap as stemming from the way it is disclosing the impacts of the Bendigo Bank Alliance (with the gap heavily reduced on a statutory reporting basis).
- Nevertheless, with an October YTD gross profit (GP) of ~A$38.5m, the FY22 consensus GP of A$159m is arguably a stretch, in our view, even noting the ability of TYR to ramp up significantly post lockdowns ending.
- We downgrade our TYR FY22F/FY23F EPS by >10%, both off relatively low bases. Our price target is reduced to (login to view).
- We continue to like the TYR story long-term with the company retaining a significant growth pathway, and with further benefits of leverage to come over time. With TYR now trading at a ~23% discount to our price target (login to view), we maintain our ADD call.
TYR has provided a trading update as part of its AGM.
TYR has consistently given weekly transaction value updates so the October YTD transaction figure of A$8.97bn, up 25% on pcp (A$7.16bn), was no surprise.
However, the market sold off the stock heavily on TYR disclosing its gross profit (GP) at the October end being $38.5m, up 14% on pcp (A$33.8m), a growth rate well below transaction value growth (~25% on pcp).
Management later clarified that the group GP, as disclosed at the AGM, had been reduced by the Bendigo Bank Alliance revenue share, resulting in the variance between transaction value growth and GP growth.
TYR said on a statutory reporting basis, where the revenue share is not deducted from GP (but amortised in the Groups’ depreciation and amortisation expense), the reported group GP would have been A$41.2m, up 22% on the comparable GP in pcp (A$33.8m).
TYR indicated to Morgans broadly, that it has not seen any discernible impact on margins from any change in the current competitive environment in recent months.
TYR’s explanation removes the initial concerns about the disparity between transaction growth and GP growth.
Still, with the FY22 Factset consensus GP at A$159m vs TYR’s A$38.5m October YTD performance, arguably this target looks like a stretch, in our view.
This is even acknowledging the ability of TYR to ramp up quickly with lockdowns now easing. This ability was highlighted in the prior year, where TYR earned 45% of its 1H21 GP in the last two months of the half as lockdowns ended (A$27.4m in November/December vs A$33.8m in July to end of October).
Forecast and valuation update
We downgrade our TYR FY22F/FY23F EPS by >10%, both off relatively low bases. Our PT is lowered to (login to view).
We continue to like the TYR story with the company retaining a clear long-term growth pathway, and with further benefits of leverage to flow over time. We think TYR going EBITDA positive in FY21 has also significantly de-risked the story.
We see today’s large share price pull back as overdone, and with the stock trading at a ~23% discount to our PT, we maintain our ADD call.
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