Why I have reentered ISX

After some time out "in the wilderness" I have recently re-entered ISX. As many of you know I was pretty disappointed with some of the events of last year around perf. shares and the risk associated with the KAB issue.

Since then there have been significant de-risking events that have taken place since - Tier 1 infrastructure in Europe with the card schemes and central banking/SEPA capacity being the most significant.

Those de-risking events coupled with applications/open accounts going from 25-50 in EMA accounts in the space of a few months and 3 merchants agreements being executed along with 12 other merchant applications in progress in AU recently show to me that there is genuine traction/uptake in product.

I have also reconciled that the issues surrounding trust in management are historical. There was a period where their interests were significantly scewed away from the general shareholder. That period has passed and we are all heading in the same direction with the same motivations. The only positive I will take out of that period is that the management, when chasing something, have the ability to, against the odds, to achieve it! That bodes well for the EBIT target that has been set.

The ADI licence and associated approvals in Australia will be a defining moment IMO. It will draw greater market awareness to ISX. I believe that the current MC is on the pricier end and requires absolute follow through on guidance but once the AU banking approvals are in place I think, in the short/medium term you need to look past purely EBIT, P/E multiples etc as that infrastructure alone demands a good chunk in enterprise value. I think the upcoming quarterly (around 30 April) will be OK but not outstanding due to the implementation/ramp up time required for customers. June and Sept. will be when things are in full swing.

I was going to wait until after the March quarterly as there may be a SP retrace as it may "disappoint" but I have offset that with the likelihood of the ADI licence being approved before 30 April and the SP appreciation that event along will command. I believe that GPTV book value will likely be updated in a significant way before then too and this may be another SP appreciative event.

On balance I decided to enter in anticipation of the ADI being approved and other positive news before 30 April.

I also noted that LHC Capital increased their sub holding in late Dec and putting the pieces together it would appear that $3.75mil sale at 20c by Red5 may well have been a purchase by Regal Funds, given their subsequent buy recommendation in AFR article.

I still think there may be one more cash flow related CR but if it is needed it will be small. If only a small one is needed it would actually be a great opportunity for management to do a Share Purchase Plan and give retail a chance to top up and avoid further dilution events.

I also think that costs need to be monitored closely going forward as I think the estimates provided will be hard to hit. If revenue tracks faster than guidance then it won't be an issue.

Well done to those that have continued to hold (and those that had the guts to buy more at 11c) over recent months. For me there was too much risk to the downside when I exited at 17c-18c and after re-entering I've ended up with an average around 21.5c but have happily paid that price as there has been significant de-risk and I see a great long term outlook now.

I think someone else may have brought it up a while back but jump on ISX website documents section and check out the beginnings of what appear to be a retail customer offering down the track - Flykk Wallet. I also note that trademark applications have been made in various countries/regions (including US) for 'Flykk'. I suspect that once the business is stable in AU and EU that Hong Kong will be the next expansion location.

I'm also impressed with the acquisition of BBC and, in addition to improving their own infrastructure, it would appear that ISX have identified another lucrative revenue stream through the combined strengths of BBC, Probanx and some of their own patented Paydentity IP being put together as a neobanking software/infrastructure licencing offering to new budding entrants who are all lining up to enter the sector through Lithuania. This was another confirmation to me that management are looking two to three steps ahead all the time.

Apologies to those that haven't liked my recent approach here and I completely understand why but I don't take back the issues I've raised both in the past and more recently - there are, like any investment, positives and negatives and there are things that need monitoring closely going forward but on balance I believe the investment case is compelling.