Australian consumers are increasingly comfortable with using so-called "mobile wallets", which is good news for payments software company Cuscal Ltd (ASX: CCL), according to the analysts at Bell Potter.
In a recent research note to clients, Bell Potter analysts note that non-cash transaction volumes are rising, with an increasing number of transactions occurring through mobile phones.
Interestingly, their analysis shows that while on a monthly basis debit card purchases through mobile wallets have increased 10% on levels in January this year, contactless tap payments were flat, and payments which involved inserting a card fell by 11%.
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Aussies comfortable with tap and go
Bell Potter analysts said Australia was actually a global leader for the take-up of digital payments, and with Cuscal providing the digital enablement technology and payment connectivity, which makes this possible, they are well placed.
Bell Potter has a buy rating on Cuscal stock, and is forecasting a total return of 20.5%, made up of 18.6% in capital growth and a modest 1.9% dividend yield.
Their confidence is based on the strong consumer take-up of mobile payments, as they explain:
Payments using mobile wallets such as Apple Pay and Google Pay totalled 4.1 billion on a run rate basis in Jun'24 which equates to 35% growth on the previous corresponding period for transactions made from debit cardholders. Consumers are becoming more comfortable with storing and using their credentials to replace bank cards. Cuscal is a beneficiary from sector growth and consumer behaviour driving volumes through its infrastructure.
The company also benefits from consolidation in the banking sector, Bell Potter's analysts said, with mergers among the smaller financial institutions freeing up more funds, which can be diverted into investment in new technology.
So far there's been six announced or completed mergers within the sector which would put the level of activity above the 10-year average and align with levels not seen since FY17. We are only just into FY26 with the trend already accelerating.
Bell Potter expects growth to come from contract wins and "capability uplift to drive above system growth, reflecting its ownership of key assets''.
Modest operating leverage through scale then gets us to low double digit NPAT growth. This is augmented by the acquisition of Indue which is expected to derive run-rate cost synergies of $15-20m from FY29.
Bell Potter has a price target of $4.60 on Cuscal shares, compared with $3.92 today.
The company was valued at $743.3 million at the close of trade on Wednesday.
