The small-cap ASX share Smartpay Holdings Ltd (ASX: SMP) is a leading idea according to a fund manager.
Smartpay allows merchants to take payments from customers with a "versatile, portable EFTPOS machine".
Recent result
Less than a month ago, the business announced its interim result for the six months to 30 September 2022.
It revealed revenue of $35.4 million, an increase of 68% year over year. Smartpay generated $8.1 million in earnings before interest, tax, depreciation and amortisation (EBITDA), which was a rise of 119%. The company also reported net profit before tax of $2.7 million, an increase of 637%.
The company saw $5.5 million of monthly Australian acquiring revenue at September 2022.
The ASX share made positive operating cash flow of $10.1 million in the period. The operating cash flow is being used to fund the purchase of new terminals, ongoing development of software and reduce bank debt.
The company is working on its Android in-store proposition, which is a "key focus". It is seeing momentum and an acceleration. It's looking forward to a "strong" second half.
Fund manager thoughts on the Smartpay share price
The fund manager of EGP Capital, Tony Hansen, shared some comments about Smartpay in the fund update for November 2022. Hansen said that the Smartpay update in mid-October was "spectacular".
The fund manager commented that "the miracle of operating leverage in a fast-growing, negative working capital business is on display in all of its glory".
He noted that while he would prefer to see every cost line grow slower than revenue, he is happy enough that marketing doubled. Hansen pointed to the "positive outcomes every increase in marketing Smartpay has had over the past few halves has had."
In the prior year, marketing costs increased by 74%, while revenue went up 68% in this latest period.
Hansen remains "very bullish" despite the "sharp increase" of the Smartpay share price.
One reason to like the ASX share is that the stated customer churn was just 1.1%. On the current Australian terminal fleet, that equates to only 12 terminals per month that would need to be replaced to maintain the fleet size.
Hansen suggested that the customer churn is so low that the marketing budget could be "almost completely extinguished and the business would probably hold similar revenue in perpetuity".
ASX share cash flow machine?
Hansen thinks that the business is consistent and could make a lot of money if management wanted it to. He concluded:
It is truly an annuity business, and at the flip of a switch, could be turned into a cash flow monster should management (or an acquirer) choose to do so. We prefer that given they still speak for a low single-digit market share that they continue to grow at the fastest pace prudence enables.
Smartpay share price snapshot
Over the last month, Smartpay shares have risen by around 20%.
