The SmartPay Holdings Ltd (ASX: SMP) share price exploded late last year following an offer for its New Zealand (NZ) assets for NZ$70 million from Verifone, which is 1 of the 2 key payment service providers in NZ.
SmartPay stated that the proceeds of the NZ asset sale will be used to optimise the Australian business for accelerated growth, settle all banking facilities and provide a cash distribution to shareholders. With its NZ business attracting such a premium valuation and its Australian business now poised for additional funding, could SmartPay be an emerging payments solution to challenge the likes of Tyro Payments Ltd (ASX: TYR) and the big four banks?
A closer look at SmartPay
SmartPay is a payments solution provider with more than 25,000 merchants and a simple pricing method for Mastercard, Visa, Alipay and WeChat pay transactions. The company strives to give small business owners a deal that is better than the bank.
For the 6 months to 30 September 2019, the company generated a revenue of $13.4 million, a 32% increase on the prior period. Its Australian business is building momentum, contributing $3.8 million in revenue or a 530% increase on the prior period. Australia currently has an annualised run rate (as of late November) of over $12 million.
This compares to one of its competitors, Tyro Payments, which has more than 29,000 Australian merchants and processed more than $17.5 billion in transactions in FY19. The figures indicate that Tyro would typically have larger clients, whereas SmartPay is more SME orientated. It is worth noting that SmartPay has a market capitalisation of just $90 million, whereas Tyro's market capitalisation is more than $1.5 billion.
SmartPay's refocus on the Australian business has seen significant growth across all metrics. The business now has over 4,000 terminals, up from 2,200 at March 2019 and is processing more than $1 billion of EFTPOS transactions on an annualised basis. Monthly acquiring revenue has now exceeded $1 million, which is a clear indication that growth is being achieved.
The Australian business is still in its early days – the company aims to build further momentum by optimising a rapidly growing data set, which will allow it to price more accurately and focus on higher margin opportunities.
Foolish takeaway
SmartPay's Australian business is showing early signs of promise. The sale of its New Zealand business will help the company's balance sheet and refocus its attention and capability on Australia.
Smartpay shares are a higher risk opportunity as the company only has a market capitalisation of $90 million, so it may not be fit for the risk appetites and objectives of all investors. The SmartPay share price has held on to its gains from late last year and is currently trading for 50 cents per share.
