There are some small cap ASX shares that are growing revenue rapidly and the share prices has been rising too after the COVID-19 crash.
Smaller businesses may have the potential to grow more over time compared to bigger businesses because they’re starting from a much smaller base.
The below two businesses are growing really quickly and could be worth watching:
Sezzle Inc (ASX: SZL)
Sezzle is one of the larger buy now, pay later businesses on the ASX with a market capitalisation of close to $1 billion.
Just like the other companies in the sector, it is experiencing enormous growth.
The small cap ASX share recently released its FY20 result in reporting season.
Underlying merchant sales (UMS) went up 250.8% to $1.08 billion, with average monthly UMS increasing to $90.2 million.
Total income went up 272.1% to $74.3 million. Total income grew faster than UMS because the margin went up 39 basis points to 6.9%. The total income is driven primarily by merchant fees, which represented 80.9% of total income in 2020, 114 basis points lower than 2019.
The company reported that the net transaction margin (NTM) as a percentage of UMS rose to 1.4% in 2020, up from 0.2% in 2019. This 120 basis point increase was due to a number of factors. There was a 50 basis point improvement in the cost of income which is mostly credited to lower processing costs, an approximate 30 basis point decline in net transaction losses and a 30 basis point increase in Sezzle income as a percentage of UMS.
Sezzle attributed these improvements to the company’s improving consumer profile, which saw favourable trends in repeat usage, frequency of purchases and overall payment performance.
Over the 2020 calendar year, Sezzle grew active consumers by 143.9% to 2.2 million and active merchants rose 166.6% to 26,690.
By the end of 2021 the small cap ASX share is expecting UMS to achieve an annualised run rate of more than US$2.5 billion.
EML Payments Ltd (ASX: EML)
EML describes itself as a payments technology company operating proprietary processing platforms that enables fintech disruption. It’s currently operating in almost 30 countries. Annually, it’s issuing more than 11 million gift and incentive cards, as well as 2 million general purpose reloadable cards.
EML says that it made a strong start to FY21, in the first half it saw gross debit volume (GDV) growth of 54% to $10.2 million, 61% growth of revenue to $95.3 million, 42% growth of earnings before interest, tax, depreciation and amortisation (EBITDA) to $28.1 million and 30% growth of underlying net profit after tax to $13.2 million.
The small cap ASX share generated $34.8 million of operating cashflow, which was up 329%. However, the statutory net profit was a net loss of $25.7 million due to one-off adjustments.
EML said that in the general purpose reloadable segment, revenue growth was driven by the PFS acquisition – organic growth in this segment from EML’s existing business was approximately 25%. Gaming disbursements are growing quickly, it had an annualised run rate of over $1 billion.
The gift and incentive revenue was only down 13% with volume impacted by lockdowns and social distancing in shopping centres, offset by lower spending which drove up breakage rates. There was strong conversion in the first half and that’s expected to continue into the second half as working capital is released.
Finally, the virtual account numbers division saw revenue growth of 5%.
According to Commsec, the EML share price is valued at 28x FY23’s estimated earnings.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends EML Payments. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia has recommended EML Payments and Sezzle Inc. 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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