The biggest update the company has released in 6 months was dropped this week and has caused a lot of questioning over the future of the company. I will try to breakdown the announcement with some reading between the lines and using logical arguments to come to reasonable conclusions. For context, the announcement relates to the granting of a white label license (WLA), allowing Findi to use their own ATMs placed in locations they desire, as opposed to setting up ATMs for existing banks through contracted tenders (Brown label license/BLA).
What does the White label license mean?
White label license is a significant growth strategy of the company. Smedley (chairman of the company) has confirmed the following in relation to the benefits of the WLA:
* Improved margins as banks don't get a cut of the ATM transaction fee
* Improved cashflow as currently Findi waits for the banks to account for transaction fees and pay them on a 60-90 day delay
* Cross sell opportunity by placing ATMs in high traffic Findipay locations
(Sources for the above - Coffee microcaps Q&A with Nicholas Smedley)
It should be noted that Findi this financial year has guided that EBITDA will be 24m with a Revenue of 67m. Their financial year has now ended (March 31st 2024) so safe to say that this guidance has been met or we would know otherwise. This is a Ebitda growth of >40% on the FY23 figures of Ebitda 16.8m and revenue 54.5m. This growth was achieved without the white label license. The white label license is not integral to Findis continuing highly profitable operations, only as a further growth pillar on top of already outstanding growth achieved. This is important to remember when considering potential valuation of the company.
Analysing the recent announcement: Was Findi granted a white label license?
Findi was granted a provisional license, with a full license to be granted if they can complete a SAR form within the next 6 months. The company advises that the SAR form is an ongoing requirement for all WLA operators that must be completed each and every year. There has been argument that this has been perceived as a negative with a share price drop to $2.34, before increase to $2.70 (at the time of writing). Clearly the provisional license wasn't to expectation of the market. Full license has been expected for some time, and the delay does not sit will with some current investors.
Is the White label license at risk?
In my opinion, no. This white label license is more likely to be granted after the recent announcement of a provisional license, as opposed to not knowing where we stand with the RBI. Logically, no government is in the business of providing a provisional license (with full power of an actual license) if they do not believe the company should be operating with the WLA. Further to this, Piramal a large investor in Findi had done a year of due dilligence (Source: Red Leaf interview with Nicholas Smedley) on Findi's operations in India, and found them to be worthy of an investment at a valuation 4x higher than the trading price at the time. This would have been based on their on the ground expertise in understanding the local authorities and likelihood of a WLA license being granted. With the above I assign very little risk at the WLA not being granted, and see this as a delay.
How long is the delay?
Up to 6 months. This could be resolved in the next month, or within the full timeframe of 6 months. Ultimately, Findi will want to have this WLA sorted as soon as possible for ongoing benefits to the business but significantly to utilise in a contract with the State Bank of India expected to go live in September 2024. Note again that the current 24m ebitda earnings are from existing contracts under the BLA license which Findi still maintains. These earnings are not at risk due to potential WLA issues.
Any more information from the announcement? Yes and very significant ones.
The announcement noted 'well advanced acquisitions' which are to be finalised once WLA full approval comes through. Findi has long maintained they are the logical consolidator in the ATM space, with a lower cost base than other operators. Nicholas Smedley has stated that they believe they could remove 50% of the cost base of acquisitions, proving highly accretive to Findi's earnings. Findi's earnings are seemingly the largest driver of the future share price, with Piramal investing at a valuation of 190m based on 10x FY23 Ebitda earnings. As stated, FY24 was guided to come in at 24m Ebitda, with acquisitions (now confirmed as multiple) and further organic growth set to drive that EBITDA higher, before a planned listing on the Bombay Stock Exchange.
In addition to news on acquisitions, Wilson Asset Management (WAM) have been revealed to be a large investor in Findi, offering further credibility to the business. WAM are smart operators with a good track record, furthering the confirmation of Piramal's due diligence that there is a bright future for Findi.
TLDR: Findi WLA does not appear to be at risk, but delayed. Guidance is expected to have been met. Confirmed multiple acquisitions are underway. Findi passes WAM's due diligence, after passing Piramal's previously, and i wouldn't be surprised to see WAM continue their buying during this opportunity.
As always, this is all in my hopefully reasonable opinion. Would love to hear others thoughts on my take and if I've left anything out!
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