MST-Access-NOV-Update-6Sep22.pdf
NOVATTI GROUP LIMITED (NOV.AX) 6 September 2022
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At the bottom of the J-curve
With its continuing strong focus on revenue growth, and new
focus on driving returns, we are likely to see Novatti swing to
delivering large attractive “jaws” going forward, with its expenses
likely to grow more slowly than its revenues, and as such, we
regard the company’s 2H22 as being the bottom of its investment
J curve.
FY23 distorted by RKN special dividend
With Novatti owning just shy of 20% of RKN, it stands to receive at
least $12.2m from RKN’s planned special dividend of 54-58cps.
This cash receipt significantly boosts Novatti’s other income, and
results in the situation of the company likely being profitable in
FY23. Novatti’s recent issue of a corporate bond will result in the
company generating free cashflows to equity. At its current share
price, we estimate NOV is trading on a FY23E underlying PE ratio
of 27.0x, and a FY23 free cash flow yield of 14.0%.
Turbocharging FY23 growth
Novatti’s Payments business is likely to continue to grow strongly
from the launch, due shortly, of its new multi-blockchain (Stellar
and Ripple) Australian dollar denominated, 100% fiat backed,
stablecoin AUDD, providing new revenue streams.
Novatti is also calling out its Acquiring business as its likely
source of strongest growth in FY23, benefiting from its
commercial partnership with Reckon.
The finalisation of a number of licence applications made in
recent years, including for its restricted banking licence, E-money
licence in Europe, and Money Services Business licence in
Singapore should also be supportive of rapid revenue growth, as
the businesses that these licences would support can finally
accept customers and grow, allowing Novatti to further leverage
on its existing partnerships with Visa, Mastercard, Unionpay,
Wechat, Alipay, Marqeta, Ripple and Stellar.
Earnings and valuation changes
Reflecting the higher cost envelope contained within Novatti’s
FY22 result, and the special divided it is set to receive from
Reckon, we change our EPS estimates: FY23E: -10%, FY24E:
-129%, revealing our FY25 forecasts for the first time.
We value NOV at A$0.76, down from A$1.00 per share, using a DCF
on free cash flows to equity with a cost of equity of 9.0%,
referencing peer multiples to validate reasonableness. Full
details including a discussion of risks are within.
Novatti is a leading digital banking and
payments fintech. It enables business to pay
and be paid, from any device, anywhere. It
does this by leveraging its ‘ecosystem’, which
includes technology and platforms, extensive
regulatory licences, and global commercial
partnership.
Its services capture the entire payments value
chain. This includes issuing, such as prepaid
Visa cards, acquiring, enabling merchants to
accept payment from financial institutions,
and processing, including cross-border
transfers and automated invoicing.
Stock NOV.ASX
Market cap A$65.4m
Price A$0.195
Valuation A$0.76 (was A$1.00)
Company data
Shares on issue: 335m
Next steps
ADI licence; EMI
licence
Pending regulators
1Q23 Appendix 4C Late October 2022
AGM November 2023
NOV Share Price (A$)
Glen Wellham, Senior Analyst
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