GCIFinseta reports strong interim performance, expects significant growth in FY24
Since 2020, I've interviewed many of the UK's most successful small/midcap fund managers. One trait they all possess is being able to run winners - separating the 'signal' from the broader market 'noise' whilst not losing sight of the longer term opportunity, even during periods of intense volatility.
Take international payments platform (formerly Cornerstone FS). Over the past 12 months, the stock has tripled in price, yet it is still materially undervalued vs Shore Capital's fair value of 70p, trading on a modest EV/sales multiple of 1.8x despite being profitable, cash generative, and going like train.
This was evidenced again by today's impressive trading update where H1'24 turnover (c. 90% spot rates vs 10% forwards), gross margins, adjusted EBITDA, and net cash all increased handsomely to £5.1m (+42%, £3.6m), 65% (61% LY), £0.8m (£0.2m) and £0.6m (ie post £2.2m of 6.0% loan notes, £0.2m Dec'23) respectively. This was thanks to a jump in active customers (ie 952 vs 874) and average transaction values.
In fact, on a LFL basis (ie excluding discontinued white label services), H1'24 sales actually climbed 54% YoY - split 61% HNWIs vs 39% corporates. The upshot is that remains firmly on track to hit its FY24 expectations with Shore Capital predicting £1.9m of adjusted EBITDA (+6%) on revenues up 20% to £11.5m, alongside ending Dec'24 with net funds of £1.4m.
CEO James Hickman commenting: "This has been another excellent period of delivery for Finseta, with substantial growth in revenue and EBTIDA as we continued to increase our number of customers and average transaction value. This reflects our success in executing on our strategy to expand our introducer network and payments capabilities while maintaining the high level of customer service for which we are known. Alongside this, we continued to strengthen our business and drivers of future growth with the important progress made in establishing a presence in Canada and with our card programme. Accordingly, and with the strong trading momentum being sustained, we remain in line with the Board’s expectations and look to the future with great confidence."
Elsewhere, fixed costs and commissions are tightly controlled too, which augmented by economies of scale and improved mix, is delivering positive operating leverage and attractive EBITDA drop through rates.
Further out, the Board's ultimate goal is to build a £100m+ turnover group by combining overseas expansion (eg Canada, UAE and Hong Kong), continued market share gains, new product launches (eg credit/debit cards and Finseta Solutions) and M&A. If I'm right, then in 3-5 years 's valuation should be many multiples higher than the current £21m valuation (re 36p).
Interims are scheduled for Tuesday, 10th Sept'24. shares climbed 5.6% on the update.
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