Tapping into the mobile payment boom – Investors' Chronicle – Investors Chronicle

Annual results from Fonix Mobile (FNX:170p) highlight exactly why the technology group has been outperforming management’s expectations.
By offering a mobile payments service that enables merchants to charge customers’ mobile phone bills for products or services, Fonix’s technology turns the mobile device into a cash register while offering convenience for consumers. It’s an important customer acquisition tool, acting as a product differentiator to traditional payment methods, such as credit cards or ApplePay. Indeed, most merchants deploying Fonix’s payment solutions do so to reduce checkout abandonment and provide them with incremental revenues rather than cannibalising existing transactions from alternative payment methods.
It’s worth noting that Fonix enjoys a high level of recurring revenue, having experienced no churn from major clients in the past six years, and continues to grow its revenue stream, too, signing up 20 new customers to close the financial year with 123 active customers.
Fonix’s 10.8 per cent growth in transactions processed was significantly ahead of the rest of the UK market, hence why it was able to report double-digit profit growth across all three business segments (payments, messaging and managed services). Moreover, the business is already starting to see similar patterns emerge in the Republic of Ireland within a few months of launching services there.
The majority of growth has come from an expansion in existing customer revenues, new greenfield opportunities in sectors that have not utilised mobile payments previously, and a gradual expansion in new emerging sectors, such as e-scooter hiring. A focus on more profitable verticals, such as payments for car parking, cinema tickets, pay-and-go gyms, gaming and public transport, is driving gross profit margins up, too.
Although a significant proportion of Fonix’s income comes from discretionary consumer expenditure, the experience of previous recessions is that such transactions form an extremely small proportion of the average household budget and so have been largely unaffected by the squeeze on consumer spending. The current financial year has started well, and the directors report a strong pipeline of opportunities to exploit across the group’s target sectors and markets.
Analysts at finnCap expect another year of growth, pencilling in 9 per cent growth in revenue, pre-tax profit, earnings per share and dividends to £58.5mn, £10.6mn, 8.8p and 7.1p, implying the shares are rated on a cash-adjusted forward price/earnings ratio of 18 and offer a prospective dividend yield of 5.1 per cent.
The holding has produced a 29.5 per cent total return since I initiated coverage (Alpha Research: Bargain opportunity to play the mobile payments boom’, IC, 5 August 2021), during which time the FTSE Aim All-Share Total Return index has shed 31 per cent of its value, and is up 7 per cent in a market down 6 per cent since I repeated that buy call at the pre-close trading update (‘Riding positive earnings cycles’, IC, 21 July 2022). I maintain fair value at 190p. Buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
■ Simon Thompson’s latest book Successful Stock Picking Strategies and his previous book Stock Picking for Profit can be purchased online at www.ypdbooks.com at £16.95 each plus postage and packaging. Details of the content can be viewed on www.ypdbooks.com.
Promotion: Subject to stock availability, the books can be purchased for £10 each plus £3.95 postage and packaging, or £20 for both books plus £5.75 postage and packaging.
We use cookies for a number of reasons, such as keeping FT Sites reliable and secure, personalising content and ads, providing social media features and to analyse how our Sites are used.
The Financial Times and its journalism are subject to a self – regulation regime under the FT Editorial Code of Practice: www.ft.com/editorialcode
© The Financial Times Limited 2022. All rights reserved.


Leave a Comment