At the end of last year, Tyro Payments Ltd (ASX: TYR) hit the ASX with guns blazing at an IPO offer price of $2.75 per share with a market capitalisation of approximately $1.32 billion. Its share price soared more than 30% on its ASX debut.
The Tyro Payments share price hit an all-time high in early February at $4.53, representing a 65% increase from its IPO offer price. Today, it trades at just $2.40.
Recent financial performance
Tyro has demonstrated a high degree of transparency by providing weekly transaction values updates for the balance of FY20. This has been introduced to address the unusual operating environment and allow investors to have visibility of the impact coronavirus on its operations.
So far, these updates have highlighted the following transaction value data for 2020:
- January: $1.830 billion (+27% on prior corresponding period in FY19)
- February: $1.785 billion (+30%)
- March: $1.600 billion (+3%)
- March (year-to-date): $16.279 billion (+26%)
And for April:
- April to April 3 (date-on-date): $0.102 billion (-23%)
- April (year-to-date): $16.381 billion (+26%)
It is clear that the business conditions are challenging as physical economic activity comes to a grinding halt. The opportunity cost is significant, particularly during periods such as school holidays and Easter.
Tyro continues to operate on a business as usual basis, providing a continued level of service, availability and support to its merchants. However, the current conditions have compressed its transaction growth rates.
Tyro represents one of the many companies that need business activity to return to pre-coronavirus levels. The company was experiencing strong growth across all metrics as its 1H20 report highlighted a 30% increase in transactions processed by Tyro merchants, a 23% increase in merchants, and an increase in revenue of 29%. Additionally, earnings before interest, tax, depreciation and amortisation (EBITDA) came in at $1.5 million compared to the $3.0 million loss recorded in 1H19.
The company had even attracted an “Overweight” stock rating with a price target of $4.15 from Morgan Stanley in January. The report described Tyro as an Australia-only, merchant acquirer business, competing mostly against the big 4 traditional Australian banks. Both globally and in Australia, payments is an attractive structural growth story.
Morgan Stanley highlighted major growth drivers such as a transition from cash-to-card, mobile and e-commerce trends. The industry itself is expected to grow by 7% per annum while Tyro, as a smaller player, is expected to disrupt the space through its focus on SME customers, use of technology and superior customer service.
Tyro has demonstrated its ability to grow its business through a strong 1H20 performance and positive EBITDA. For the Tyro share price to be trading under the IPO offer price does place it as good value.
Tyro also has $154 million in cash as of February 2020 and a simple capital structure with no corporate debt. However, this all depends on how quickly the economy can return to normal.
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Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Tyro Payments. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.