EPO outlook27 Oct 2016 08:40
Excellent post from another board.
Quick sense check: The overheads were £25.8, including £2.9m of amortisation - giving a cash overhead of £22.9m. The gross margin is 70%, so to reach cash break even the revenues need to be running at £22.9m/70% = £32.7m. That is revenues up £32.7m/£22.8m or 43%. Transaction numbers grew at 91% in Q1 2016/17 to 2.3m, but revenues only grew at 34%. This seems to be a combination of falling professional income (down 33% last year) and declining revenue per transaction (down from £4.7 to £3.1 last year). If revenue per transaction is to be £2-£3 long term, as per their capital markets day presentation, then transactions need to grow to 10.9m - 16.3m for company to reach cash break even. A growth of 91% for full year would be 12.5m transactions, in bottom half of this range. 91% is equivalent to 17.5% per quarter - which would take Q2 to 2.7m, Q3 to 3.2m and Q4 to 3.7m transactions. Q4 annualised would be 14.8m transactions which would be breakeven if revenue per transaction was £2.2. All in all their forecast of cash break even by Q4 looks credible. If revenues for year grew at 34% to £30.5m - then gross margin at 70% should be at £21.4m, meaning the cash operating loss in 2016/7 would be (£22.9m-£;21.4m = £1.5m). This should mean that their £14m cash reserve should easily get them through to cash break even and profitability, even with further capex. All in all Earthport should look very strong by this time next year and the issue will turn back to what is the right price for a fast growing global payments business with recurring revenues and 70% gross margins?
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