Coverage by Simon Thompson in Investors Chronicle, today24 Sep 2024 12:43
Fonix's international expansion presents a repeat buying opportunity.
Mobile payment technology group Fonix Mobile (FNX:232p) flagged up its record annual results in a pre-close trading update when the directors upgraded their earnings guidance. House broker Cavendish pushed through mid-single-digit earnings upgrades at the time (‘Fonix’s earnings upgrade cycle is far from over’, 22 July 2024).
Founded in 2006, Fonix’s core activity is offering a mobile payments service that enables merchants to charge customers for products or services (mobile ticketing, gaming, parking, dating, charity donations), turning the mobile device into a cash register while offering convenience for consumers. The London-based group has a blue-chip client base heavily weighted towards the media sector, the segment accounting for nearly 80 per cent of last year’s gross profit of £17.9mn.
The double-digit increase in transaction volumes processed in the 12-month trading period was driven by a combination of domestic growth and international expansion. Fonix has successfully cracked the Republic of Ireland, having launched services less than 24 months ago with Bauer Ireland, RTÉ (Ireland's National Television and Radio Broadcaster) and Wireless Radio Ireland, along with several smaller clients in the country. For instance, Fonix’s live broadcaster voting services support Eurovision voting across both the UK and Ireland, along with RTE’s telephony voting services.
The customer-led roll-out in Ireland is being used as a blueprint for low-risk expansion into other well-regulated overseas territories. Expansion into the Portuguese market is imminent, having been initiated by one of the group’s multinational media clients with a strong presence in the country. Fonix has developed a robust pipeline of potential clients across both TV and radio broadcasters and plans to start processing transactions in Portugal ahead of the Christmas trading period. The international segment accounts for 12 per cent of group gross profit, a weighting that can only increase as more overseas markets are targeted.
High operational gearing
The other major benefit of scaling up international operations is that Fonix has a relatively fixed cost base and a highly scalable technology platform, so it benefits from high operational leverage in a positive revenue cycle.
In fact, more than 80 per cent of incremental gross profit earned in the 12-month trading period dropped through to operating profit. Moreover, the low capital requirements of the business mean the group is a prodigious cash generator. Underlying cash, which excludes cash held on behalf of customers increased a fifth to £11.3mn, and that’s after making £2mn of share buybacks in April 2024 and paying out £7.5mn in dividends. Interest income trebled to £1.1mn in the period, too.
PART 2 to be continued..
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