I have a medium-term investment horizon on Tyro and personally, I was happy to load up the truck at these prices. I'd be interested to know what Ben Clark from TMS Capital is thinking right now; I believe TYR is in the top 3 picks of the TMS Capital High Conviction Fund.
Tyro Payments has a 17-year history as a non-bank merchant acquirer facilitating card payments in Australia on behalf of 32,000 merchants. They are winning market share from the 4 major banks by focusing on SME’s in their 3 key industry verticals (retail, hospitality and health). Tyro only has a ~ 12% market share of these three verticals so far which are estimated to represent ~$170B of TTV p.a. (big upside potential)
Moreover, scale benefits are starting to appear in the P&L. Expenses as a percentage of revenue have declined by 10% over two years. This trend is likely to continue as Tyro continues to scale its TTV, underpinning strong EBITDA margins over time.
The market is currently pricing Tyro on 12x 1-year forward (FY21) Gross profit (GP) [using an expectation of $117m GP in FY21]. This multiple is in line with a number of similar listed payments companies offshore and is reflective of the high margins these business models have demonstrated over time as they scale.
As Tyro grows over the coming years, the market will gain further confidence in the long term EBITDA margins of the business. This is what should drive share price appreciation over time.
My take is that a year from now, the events of the past week will most likely be seen as just a blip on the radar.
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