This is the season for fintech, what with the perception that it is the new frontier in finance but a stagnant share price and wobbly profit conspire to indicate that e-transact, an operator in that space needs to innovate to compete effectively in that space.
The fintech company’s stock price has been horizontal on the Nigerian Exchange (NGX), trading at N2.06 for as long as the graph can read backwards. This is perhaps due to the losses of the last financial year and the absence of announcement of anything pathbreaking from the cards company.
The company’s unaudited half year results seen at the NGX shows improvement in bottom line despite a drop in revenue. It also revealed improved margins relative to the first six months of last year. Revenue was down by 4 percent to N11.2 billion from N11.7 billion. But a well-managed drop in cost of sales help push up the company’s top profit level; COGS fell 9.3 percent to N10.2 billion compared to N11.16 of the equivalent period.
As a result of better COGS, Gross profit more than doubled. Rising gross profit moved up the company’s gross profit margin to almost 10 percent from 4.5 percent, an indication of improvement in sales strategy ed by 115 percent to N1.1 billion from N504.4 million. This had a direct effect on operating profit.
Thanks to good cost management, the company’s operating profit also improved by 107 percent to shore at N29.15M compared to losses of N394.5 million of the equivalent period. With the significant rise in operating profit, came improvement in operating margin. A metric for measuring efficiency in cost management. The company’s operating margin though lean at 0.2 percent is a significant improvement over the equivalent period when the margin took a slide of 3.4 percent.
It is noteworthy too that the company had a positive pretax profit of N87.6 million, which is 129 percent better than the previous position when the company lost as much as N300.8 million in pretax profit. The concomitant effect is that pretax profit margin, or the index that sows the company is managing loans well, improved to 0.78 percent. Once again, although the margin is small, it is better than -0.26 percent that was achieved in the equivalent period.
Improving margins all the way to improving pretax profits had a positive effect on bottom line, helping the company to reverse the losses made in the equivalent period and the 2020 full year. The company’s net profit hit N59.56 million from a negative position of N300.8 million. The reversal improved net profit margin to 0.53 percent from a negative 2.6 percent.
It is clear that the fintech company is on a profit trajectory with improving margins. This is even seen in how hard the company works its assets to achieve profitability as return on assets went up to 0.56 percent from a negative 4.4 percent. The same applies to the rise in Return on equity to 2.9 percent from minus 19 percent.
Despite the improving profit indices, the company price remains stagnated at N2.06. The clear message here is that investors are looking for something new from the company in this age of competition where the likes of Interswitch and Flutterwave. Indeed, new technology is what holds the key to creating value. Otherwise, as it has become clear that despite the company poise to return to profit this financial year, its stock price and therefore value may not improve significantly from the current price. We recommend SELL if the company doesn’t do anything to disrupt the market in the near term.
ADVISORY ON ETRANSACT