just sat down after a busy day to check the portfolio…. Shiiiit
ok well that was a bad start to the week… and the two reports that I am really worried about ie appen and alibaba, are still to come on Thursday
bad omen
oh yeah and we may be at war by then too
amyway, read through the presentation and thread. I get why the market threw its toys out of the pram today, but if I was gold this yesterday, I wouldn’t have sold it in a panic for 27% less today based on this report, which makes me think the real selling was augmented and amplified by stop losses being triggered, bots, shorts and buyers sitting on their hands waiting for a buy signal.
there is a huge amount of noise in these numbers:
- Bendigo numbers for the first full half, which artificially over inflate ttv and revenue growth but also artificially compress margins compared to the core business
- good old covid causing chaos including (1) tyro’s core industries being those hardest hit ie in person retail, hospitality, tourism and healthcare (2) nsw being a core region was under lockdown for most of the half, (3) no more job keeper vs 2020, (4) tyro absorbing the costs of terminal rentals and fee rises to build customer loyalty and maintain customers (avoid cancellations) during lockdowns, (5) rising wage costs with shut borders, (6) less loans, (7) record low interest rates, (8) lower customer cash balances, (9) more customers than Pre covid going out of business, etc etc
- upfront costs of medipass and Telstra deals
- investment in R&D to future proof against competition (android app, new terminals, e-commerce platform, etc)
- deals such as 12mo free terminal rental in the land grab for customers to build the maximal customer base, for which they compete against square et al
- costs of the ongoing compensation for the system failure 12mo ago.
my point is that whilst the numbers look disappointing (in terms of ebitda and npat going backwards, cashflow remaining negative and operating margins compressing) it is fairly pointless trying to interpret these numbers at present, due to all of the above moving parts (transient factors) ans several others.
the fundamental questions are:
- can tyro achieve positive free cashflows that will expand as it grows, and at maturity then what are the free cashflow yields likely to be once they reach the stage of their business that they are ready to focus on cashflow rather than market share and scale? This is impossible to estimate at present, but say if we modelled conservatively for 2025 using 20% cagr over 3 yrs then we get 50b ttv, 500m rev, gross margins 50% and operating margins 15% for 75m op cashflow. Then you assume they are growing the banking and loans business whilst rates are increasing which expands NIMs (margins), adding further partnerships (like Telstra and Bendigo), possibly expanding into new industries or geographies, growing e commerce rapidly, etc then you can easily get to 100m operating cashflow for 2024-25 FY as a base case estimate (neither bullish or bearish)… I don’t know where the R&D, acquisitions, share base compensation etc will leave npat, but I do think if they are at say 60m in ebitda (which they should be if they control costs and are disciplined with R&D expenditure) with a growing moat due to their market share, market leading product and customer loyalty, then the current share price looks cheap.
I disagree strongly that the business model is broken and they will never be profitable based on todays result. I think that view demonstrates a complete lack of understanding regarding all of the factors above.
the market is telling the tyro board and CEO today that they want to see serious discipline now on the cost side, to demonstrate that they can grow whilst constraining costs and preserving an acceptable operating margin.
if Robbie and the team can take notice and execute a continued growth strategy with razor sharp focus on cost discipline, then we will see a sustained rebound in the share price 12mo from now.
I would be happy ti buy more at these levels, having picked some up recently at 2.12. But I’ll wait for the bottom and the false bounce then see if I can get some even cheaper eg 1.40- 1.50 in the midst of further market wobbles or shareholder despair.
there is of course a chance that the tyro team can’t control costs and grow revenue simultaneously, in which case the thesis may be broken in 12mo. The other big risk of course is that a tech disruptir (or multiple competitors) create a price war and tyro has to cut margins to maintain market share…
i think these bear theses are unlikely, so the risk reward is in favour of the brave once this company finds a bottom and recovers. It will likely be range bound between 1.40-low 2s until the next half year report or other major update/ announcement.
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Price($) | Vol. | No. |
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