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Mi-Pay Group Plc

Mi-Pay Group plc Contract Extension de-risks Forecasts

Mi-Pay Group plc (LON:MPAY), the leading provider of mobile payment solutions to Tier 1 Mobile Network Operators and Mobile Virtual Network Operators, is pleased to announce that it has agreed a contract with a long-term existing client for an incremental 3 year period. This is expected to secure existing revenues and drive material growth in payment transaction value processed from the €25 million processed in 2016. During the life of the contract it is expected that per annum transaction value processed will increase to over €100 million.

Mi-Pay will be working with the client over the next 12 months to secure the growth in transactions through the delivery of its fully outsourced, Omni-channel digital payment solution and assisting the client with its full infrastructure rebuild. Mi-Pay will be integrating and providing new services to the client’s customers, improving the end user digital payment experience within a secure, risk free fully managed environment and ultimately aiming to migrate further consumers to its solution during 2018.

There will be an initial reduction in revenues and margin as both parties focus on the delivery of new solutions and new commercial terms take effect, however Mi-Pay expects to see strong long-term revenue growth during 2018 and beyond as the anticipated higher volumes are realised

Seamus Keating, Chairman of Mi-Pay Group plc commented: “We are delighted to have secured an additional contract with one of our valued existing clients for another three years, in which we expect to aid them in fully transforming their infrastructure and significantly grow their digital consumer base as their chosen digital payments partner. We look forward to growing our relationship with our client and providing additional functionality to their end users.”

Zeus Capital said:

Significant contract win de-risks forecasts

Mi-Pay Group has announced a significant new contract with an existing client. The contract is for an initial three-year period and was won in a competitive process against the joint incumbent provider. This secures existing revenues and will generate substantial growth in payment transaction value. Over the contract period it is expected to have a cumulative impact on annualised transaction volumes of c. €100m. Putting this in context, total transaction volumes in FY16 for this client amounted to €25m. We take the opportunity to de-risk forecasts, providing a much higher degree of certainty with regards FY18 and FY19 revenue estimates. However, the new financial terms of the contract, relative to the current situation with the client, mean there is a short-term impact to profitability as volumes build during the life of the contract. Despite this, the announcement should be viewed positively as it highlights Mi-Pay’s ability to win important large competitive tenders and positions it well to win further similar contracts and the increased scale this contract brings will enable Mi-Pay to become increasing efficient in the delivery of its services to all its clients. A conservative approach has been taken to forecasts factoring in today’s contract win relative to unsecured revenue.

Important milestone in Mi-Pay’s development – Winning this competitive tender shows that Mi-Pay’s commercial offering matches anything that is currently on offer in the market and underpins the confidence in the business model. The success of the contract cannot be guaranteed but Mi-Pay already provides services to the client which should limit the risk. Over the next 12 months Mi-Pay will be working with the client to deepen and broaden the services provided, delivering its outsourced, omni-channel digital payment solution and assisting the client with a full infrastructure re-build. This will secure the substantial increase in transaction volumes which are hoped to exceed €100m per annum over the contract’s life and increasing as the client’s customers naturally migrate to digital payment solutions from the retail environment.

Forecasts – The downside to today’s win is that due to changed economics within the contract and focus of Mi-Pay’s resources in the delivery of the solution there is a short-term impact to revenue and profitability as volumes build. This leads to a cut in revenue forecasts in FY17 to £3.3m (prev. £3.9m) and sees the Gross profit margin fall to c.56% from 60%. In FY18 and FY19 a conservative approach has been taken. Rather than increasing forecasts on the back of the contract we de-risk estimates by replacing unsecured revenue with the contribution from today’s contract. This materially increases the visibility in FY18 to c. 70% of revenue. As a consequence, should revenue from the Philippines build over the next 18-24 months it will further underpin revenue and profit forecasts. Importantly the Group remains well funded, continues to grow at the transaction processed level and we do not envisage the contract putting significant additional pressure on working capital.

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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.