AMP and iSignthis – A look at their cash outflows

Introduction:

Cash outflow is a common phenomenon across all the businesses. Any expenditure or investments irrespective of its tenure and other costs relating to the business activities or other operating activities are termed as cash outflow of the business. Cash is an integral part of a particular business and can be known as the blood of the business. Any changes in cash out flow affects the business as firms would have less cash in hand and might be facing limitations in its operations.

Several fintech companies witnesses higher cash outflows due to investments in infrastructure, research and development, security etc. Analysts look at the cash flow of the company and value, then try to value the business as per their estimated cash flows. Other factors such as payments to the creditors, withdrawn funds by the depositors etc. are also included within the cash outflows.

We will now be discussing the two stocks that operates in the financial service and online payment service space.

Amp Limited (ASX: AMP)

Amp Limited (ASX: AMP) operates in life insurance, banking, superannuation and other diversified financial services across the geographies like Australia and New Zealand.

On 24 October 2019, the AMP updated the market on its third quarter results for financial year 2019 wherein the company mentioned the following.

  • The banking segment witnessed strong deposit growth of $0.6 billion to $14.5 billion, while the loan book grew to $20.3 billion.
  • Higher cash inflows in Australian wealth management offset by higher outflows of $0.6 billion across regular pension payments and $0.2 billion from the impact of new Protecting Your Super legislation.
  • AMP Capital reported net external cash inflows of $0.8 billion during the quarter aided by strong infrastructure debt and real estate flows, resulting in AUM above $202 billion.

The business offered value propositions to its client, which has resulted in a strong deposit growth followed by growth across loan book.

Australia Segment:  

  • Within the Australian segment, the business witnessed growth in wealth management AUM to $133.2 during Q3FY19.
  • During the quarter, the business reported net cash outflows of $1.9 billion driven by:

added cash outflows of $9.0 billion, which includes $0.6 billion in regular pension payments to AMP’s clients followed by $0.2 billion of expenses incurred for Protecting Your Super legislation.

  • The business reported 31% rise in Higher North’s net cash inflows aided by increase in inflows of $0.3 billion from external financial advisers, while MyNorth witnessed a reduction in its fees due to higher internal flows.
  • The company reported cash inflows of $7.1 billion, which is higher than Q3FY18 by $0.6 billion, while inflows from North net cash inflows was up by 25% standing at $1.1 billion.

AMP Capital:

The segment reported AUM at $202.2 billion, while the company reported $5.4 billion of capital, which is available for investment. During Q3 19, net cash outflows came in at $1.1 billion, which includes- net external cash inflows of $0.8 billion. External cash inflows demonstrated solid drive growth in infrastructure related debt, where AMP made investments of $0.6 billion across global assets and real estate segment that were offset in portion by public markets redemptions and China (Life AMP Asset Management) outflows. Net internal cash outflows were reported at $1.9 billion, which followed outflows in Australian wealth management.

AMP Bank

AMP Bank reported deposits, which grew by $0.6 billion during Q3FY19 at $14.5 billion, registering solid growth in retail and platform deposits. The above results came in line with the management guidance. During the quarter, AMP’s total loan book grew by $0.1 billion to $20.3 billion aided by ongoing growth from the mortgage broker channel despite subdued market conditions.

New Zealand Wealth Management

This segment’s AUM was marginally lower at $11.8 billion for the period, primarily due to currency weakness.

Stock Update: The stock of AMP was trading at $1.827, up 0.939% (at AEST 2:18 PM) as on 25 October 2019. The market capitalisation of the stock stands at $6.22 billion. The stock has provided a dividend yield of 7.73% on an annualised basis. The 52-week trading range of the stock stood between $1.57 to $3.35.

iSignthis Ltd  (ASX: ISX)

iSignthis Ltd (ASX: ISX) operates in payment services and holds license to issue emoney or electronic money and functions in transactional banking and card services space.

Gross Processed Transaction Volume (GPTV) trends (Source: Company’s Report)

Operating Highlights for Q3FY19:  ISX reported its third quarter results for the financial year 2019 for the period ending 30 September 2019, wherein, the company reported operating cashflow of $1.067 million followed by a cash receipts of $8.326 million, up 35.5% on q-o-q basis. The company posted its revenue at $8.58 million, increased 36% on q-o-q basis. ISX reported total cash receipts of $8.326 million, which grew by 38.5% from the previous quarter. The company reported cash balance of $12.2 million as on 30 September 2019. ISX reported client funds held at $75 million in Q3FY19 from $35 million in the previous quarter.

Apart from payment services, the company reported other revenue stream like Paydentity, Probanx, spot FX fees, and so forth. The company reported net cash from financing activities at $1.72 million, net cash used in investing activities at $0.052 million during the third quarter of FY19. ISX reported net cash from operating activities at $1.067 million during Q3FY19.

Guidance: As per the management’s guidance, the company is expecting an estimated cash outflow of $13.84 million for the fourth quarter of FY19. The company has guided that it would spend $0.2 million in research and development, $11.2 million in product manufacturing and operating costs while $1,750 million is estimated for staff costs. ISX has reported administration and corporate costs to be around $0.6 million in coming quarter. The management highlighted that the company is targeting FY19 EBIT of $10.7 million.

Suspension from Official Quotation: On 2 October 2019, ISX updated the market that in consultation with ASIC, and with respect to the recent volatility in its stock price, ASX has determined that it is suitable to suspend trading in the securities of ISX, pending the result of the enquiries to be made by ASIC into a various issues regarding iSignthis.

Stock Update: The stock of ISX last traded on 1 October 2019 at a price of $1.070. ISX has an outstanding share of 1.09 billion. The stock has delivered stellar returns of 50.7% and 262.71% during the last three months and six months period, respectively.


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