Mi-Pay Group plc (LON:MPAY) has announced a good set of FY16 results this morning delivering £3.3m of revenue, in line with the trading update released 30 January. The group has delivered a solid trading performance with underlying revenue increasing 8.8% to £3.3m (FY15: £3.0m), with healthy growth in transaction services (+13.7%) held back by an expected weaker performance in professional services (-5.8%). Gross profit was ahead of expectations driven by a c.810 bps improvement in gross margins to 64.2% (2015: 56.1%) delivering gross profit of £2.1m (2015: £1.7m). Despite the encouraging trading performance in FY16, ongoing consolidation in the company’s end markets and continued sluggish growth in APAC means we revise FY17E forecasts.
* Results better than expected with significant progress made in FY16 –Operationally and financially the company made significant progress through the year. Operating costs were reduced to £2.3m or 70% of turnover (2015: £3.0m or 99% of turnover) resulting in an EBITDA loss of £0.2m (2015: £1.3m loss) vs expectations of a loss of £0.3m. At the adjusted PBT level the company made a £0.3m loss (2015: £1.4m loss) vs expectations of a £0.4m loss, again representing a substantial improvement on the previous year and coming in slightly ahead of expectations. The company saw a net cash outflow of £0.2m for the year (excluding movements in client funds) but importantly was break-even in H2.
* Forecasts – Despite the good progress made in FY16A we revise our FY17E forecasts reflecting two key trends impacting current trading and the immediate growth profile. There is ongoing consolidation amongst European mobile operators which has slowed growth as newly merged companies consolidate their customer bases and digital payment solutions, while this has impacted FY17E negatively we believe this represents a growth opportunity in the longer term. Customer uptake in the APAC region has continued to be slow but remains a significant growth opportunity for the group in the medium to long term. We now expect the company to break even at the EBITDA level in FY17E vs previous forecasts of £0.2m profit. We also introduce forecasts for FY18E and FY19E. We expect top line growth of 27.5% in FY18E resulting in £0.1m EBITDA followed by 19.8% growth in revenue for FY19E delivering £0.5m of EBITDA.
* Outlook – Progress made both operationally and financially in the business in FY16 is very encouraging. Despite marginally reducing our expectations for FY17E, we see significant growth potential in FY18E and FY19E. Having proven the business model over the last 18 months the management team must now execute on ambitious growth plans. Asia remains key to achieving this and any indication that growth in the Philippines is starting to come through would be taken positively.
