Why the Earlypay (ASX:EPY) share price is going nuts

The share price of Earlypay Ltd (ASX:EPY) has flown higher, it's up more than 10% after releasing its FY21 half-year result to investors.

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The Earlypay Ltd (ASX: EPY) share price has gone nuts today, it's up more than 10% after announcing its FY21 half-year result.

Earlypay is a business that provides finance to small and medium businesses (SME) in the form of secured invoice financing and equipment financing. SMEs can receive an advance payment of up to 80% of a client's invoice to help cashflow pressures.

What was in the Earlypay result?

The company revealed that it generated $9.8 million of earnings before interest, tax, depreciation and amortisation (EBITDA), which was down 4% compared to the prior corresponding period.

Net profit after tax (NPAT), after adjusting for non-cash amortisation, was down 24% to $3.5 million.

Earlypay said that new business outcomes were accelerated by the acquisition of Skippr platform, with online applications representing 56% of new business in the second quarter after the launch in September 2020.

The company has been working on reducing its costs. It said it had achieved permanent cost savings of $1.5 million through the restructure of its funding lines during the second quarter of FY21.

Management were pleased with the company's performance in the first half considering the impacts on the SME market relating to COVID-19. Indicators point to a recovery across most metrics going into the second half.

Earlypay said that it showed resilience with no material defaults or losses through the peak of the COVID-19 downturn. It said that it's well provisioned against elevated SME insolvency risk as government support reduces in the coming months.

The company revealed that the second quarter group revenue was up 5% quarter on quarter to $11.1 million, the EBITDA grew 33% quarter on quarter to $5.6 million (with the EBITDA margin improving from 43% to 47% in the second quarter) and the NPATA increased 92% quarter on quarter to $2.3 million.

CEO commentary

Earlypay CEO Daniel Riley said:

Current volumes indicate that we are now back trading in excess of $2 billion total transaction value (TTV) on an annualised basis. This is due to an increase in funding requirements from existing clients, as well as new clients coming on board as our organic growth continues to build.

Restoring the Earlypay brand signified a return to our company's roots as a leader and innovator in the small business finance sector. The integration of the Skippr business, acquired in August 2020, is driving our digital transformation by improving client acquisition and client experience through new technology, while making our business more efficient. The firm-wide digital transformation is ongoing and we expect this investment in technology to drive organic revenue growth and operational efficiencies for years to come.

Earlypay dividend

The company's board decided to declare an interim dividend 1 cent per share. It didn't pay anything in the prior corresponding period.

Earlypay share price movements

Excluding today's gain, the Earlypay share price hadn't done much since the start of 2021. Over the last 12 months it's down 22%, though it has risen over 80% since the bottom of the share price at the end of FY20.

Outlook

It said that it's expecting to report record half-year earnings for the second half and has provided guidance of FY21 EBITDA to be more than $21 million, NPATA to be more than $8.5 million and a final dividend of 1.3 cents per share.

The company sees the second half of FY21 as a place from which it can start building growth again and capitalise on the digital changes it has made, as well as the improved client experience and bigger addressable market.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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