Numbers speak louder than words, page-6

From my emails this morning …

There’s a fair bit of movement in the banking industry at the moment which we consider to bode well for Novatti Group (ASX: NOV), in particular their 91% stake in...

There is a bit of movement in the fintech banking industry at the moment which we consider to bode well for Novatti Group (ASX: NOV), particularly through their 91% stake in the International Bank of Australia (IBOA). Because IBOA is currently operating on a restricted banking licence, we suspect the market doesn’t value IBOA because they can’t see the bank's full operations like other banking fintechs which are rapidly taking market share away from the Big Four. As Novatti has communicated, IBOA is a payments bank.

The plan is to eventually offer savings and lending products but the immediate plans centre around payment products, for borderless banking and fintech integrations. You might not have heard of them but Cuscal is one of the biggest payments banks in Australia and has engaged Bank of America to advise them on a potential IPO. The IPO would value Cuscal at $500 million with their pitch documents showing FY22 revenue of $182m and net profit after tax of $23.4m.

Between Novatti and IBOA, there are a lot of product similarities to Cuscal so their listing at that $500m valuation validates the long-term viability of IBOA as a dedicated payments bank at higher valuations alone than Novatti’s current market cap ($45m). In March 2023, Cuscal acquired Basiq which was previously responsible for 86 400, the neobank acquired by NAB for $220 million.

Both those events highlight the threat the emerging fintech is towering over the Big Four whose best defence has been to acquire smaller fintechs and integrate the technology. This has been much more productive than attempting to build their own with many well-publicised failures that have come at much higher expenses than M&A.

Elsewhere, Great Southern Bank has a large stake in fintech Constantinople which is set to launch its Bank-in-a-Box platform after raising $32m in seed capital. Their platform is expected to service the major banks as a cheaper option than running their own infrastructure but just another example of why the Big Four are consistently turning to fintechs to meet customer demands for cleaner banking and payments products.

As we outlined in our report last month, we don’t expect IBOA to be an M&A target until they receive their full banking licence. But should Cuscal be successful in listing at a $500m valuation off $182m revenue (2.7x) as a payments bank, we see positive signs for IBOA and Novatti whose market cap has them trading at just 1.4x revenue ($32.5m in FY22).

If you’ve got any questions about Novatti, feel free to reply to this email.

Regards, Jack CornipsTrading Desk AssistantT: (03) 8080 5777E: [email protected]

Why not send Jack some of these questions.

cheers Anton