For mine, Quickfee’s greatest potential upside derives from the platform EFT/ACH revenues in the US ahead of lending revenues. Coupled with a closer reading of the August 2020 investor conference call, and a closer look at the HY investor slide deck it was easy for me to become excited about the potential upside for the business in the US.
First the conference call, Bruce Coombes spoke to the high take up of the product in the USA, accelerated by office closures during COVID.
- “We are fortunate to be able to have such a high level of acceptance, and we recently signed our first top 10 accounting firm in the United States (potentially BDO - see the next section).”
- “We recently did an event in conjunction with BDO in the United States, where we took them through sales processes for accounting firms in the time of COVID, and that had 181 people turn up. So we do outreach that way. But primarily, we're using some cold call-type techniques for the United States. To a large extent, part of the opening question is, "Hey, is the office closed? Yes, it is. Who's picking up the checks? I don't know. Why don't you move to e-payments and payment plans?"
For mine, Platform fee revenues in the US are more analogous to a VISA/MasterCard/Tyro payments type product, and doesn’t rely on lending. It’s low risk, and it’s a customer focussed solution. Given transaction volumes in the US market, it has the potential to be massively transformative for QFE. Refer to the HY Report Slide Deck.
From page 7 of the HY Slide Deck:
- HY21 Net income was AUD $3.9m, with NPAT of ($2.8m). Contract revenue was AUD $1.9 million.
From page 11 - US generated positive adjusted EBITDA before growth expenses of A$413,000 (and though it is not stated in the report, in my view, this figure likely to continue to grow based on the strong growth of platform and lending revenues in the US).
Page 12 of the HY Slide Deck contains a run down on the US platform EFT/ACH fees:
- HY21 transaction value of USD $285m
- US Merchant and platform fee revenue of USD$1.4m (ie. correlates to contract revenue of AUD $1.9m).
- A headline projection in the slide deck (repeated in the heading of slide 12) is that QFE is projecting FY21 total transaction values for their EFT/ACH platform of USD $700m, which equates to merchant and platform fee revenue of USD $3.5m (AUD$4.55m). Assume lending revenues remain constant (and in the US, the value of lending had grown at 41 percent as at H1 2021), this equates to second half revenues of in excess of AUD$6.5m, which would bring the business close to break even for the second half of 2021 (potentially better, in my view).
In my view, the above is the secret herbs and spices of the QFE business. It’s why it’s a no brainer for me to top up at 32c, as if the trajectory of growth in US revenues is continued, the share price will look after itself.
Obviously DYOR, this is not financial advice. it’s just the thought process which prompted me to triple my holding in the last few days.
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