On 31 January 2019, the shares of Splitit Payments Ltd (ASX:SPT) and Link Administration Holdings Limited (ASX:LNK) were trading in the opposite direction. The shares of Splitit closed in red while Link Administration closed green on the day.
Splitit on 31 January 2020 provided an outline of its quarterly activities for the three months to 31 December 2019 at AEDT: 8:32 AM. Post which the shares dropped significantly on ASX by 10.219%. On 3 February 2019, with the market open, the shares of SPT opened at $0.590, down $0.025 from the previous close. The highest price recorded for the day was $0.590. By the closure of the market, SPT’s shares closed at a price of $0.570, down 7.317% from its previous close. Around 1,294,489 shares traded on ASX. SPT’s market cap as on 03 February 2020 is 191.59 million with ~ 311.53 million outstanding shares. Also, the shares have delivered a YTD return of -7.52%.
On the other hand, Link Administration Holdings announced its binding agreement with Pepper Group for the acquisition of 100% of Pepper European Servicing for an upfront cash payment of €165 million. The announcement had a positive impact on the shares as post the announcement at AEDT 8:46 AM. LNK shares on 31 January 2020 closed at $6.810, up 9.662% from its previous close. However, on 3 February 2020, LNK shares opened at $6.600, down by $0.21. The highest price of the share on the day was $6.650, and the shares closed at $6.460, down 5.14% from its previous close. The market cap of LNK on 31 January 2020 was noted at $3.61 billion with ~530.83 million outstanding shares. Moreover, the shares have delivered a YTD return of 16.81%.
Also, on 3 February 2020, most of the sectors on ASX closed in red on ASX majorly influenced by the spreading of coronavirus. Most of the companies within all these sectors having a relationship with China impacted these sectors. When it comes to S&P/ASX 200 Information Technology (Sector), the index closed at 1,547.5, down 1% from the previous close while the benchmark index declined by 1.4% from its last close and was at 6,923.3 points.
Let’s go through the announcement/s released by these two companies to get a better insight on them.
Splitit Payments Ltd (ASX: SPT)
Splitit Payments Ltd (ASX: SPT), a leading global monthly instalment payments solution business has released its quarterly report for the three months ended 31 December 2019.
Some of the highlights from the same are as follows:
Record sales were noted in the fourth quarter of FY2019, with solid growth across performance metrics.
- Merchant Sales Volume (MSV) increased by 20% to US$27.1 million as compared to the previous quarter. An outstanding growth of 35% was noted from North America in the last quarter.
- However, the revenue of the company declined by 7% on the prior quarter, with a further US$71K of revenue from Q4 MSV from funded plans to be recognised in Q1 FY20.
- 12 Month Active Merchants increased by 17% to 386, as a result of strategic focus on merchants with higher Average Order Value with a stronger product-market fit.
- 12 Month Active Shopper declined by 6% to 118,000 while Repeat Shoppers remained unchanged.
UK Operations & EMEA Leadership:
With the increase in the demand and opportunity for SPT in the UK, SPT appointed Melanie Vala as VP, Europe. She replaced Co-Founder Gil Don who stepped down from the position in January 2020.
Partnership with Stripe:
Splitit has signed a new partnership agreement with Stripe, which is a global payment technology company to integrate the solution of SPT with Stripe Connect, streamlining merchant onboarding and enhancing the merchant experience. Further, the agreement would also provide the technology to allow merchants to self-onboard to SPT’s platform.
SPT considers the partnership with Stripe Connect as the most critical one till date as it concentrates on expanding its business.
A Glance at Cash Flows during the period:
SPT reported an increase in the cash outflows during the period, consisting of the followings:
- Advertising and marketing costs which were US$1.03 million in Q3 FY2019 increased to US$1.29 million in Q4 FY2019.
- Staff costs increased from US$0.92 million in Q3 FY2019 to US$1.85 million in Q4 FY2019.
- Significant increase reported in Corporate and administration costs which includes a number of one-off payments, accrued in Q4, relating to severances, legal costs, new credit facilities, and consulting services. The cost increased from US$0.67 million in Q3 FY2019 to US$2.2 million in Q4 FY2019.
- Slight increase in the research and development costs. It increased from US$0.22 million in Q3 FY2019 to US$0.29 million in Q4 FY2019.
The cost incurred during the period was in line with the December 2018 prospectus. Also, the net operating cash outflow for the quarter was US$4.76 million, a fall on the previous quarter.
Link Administration Holdings (ASX: LNK)
Link Administration Holdings (ASX: LNK) has entered into a binding agreement with Pepper Group to acquire Pepper European Servicing for €165 million (~A$266 million) and additional €35 million (~A$56 million) in case certain total Assets Under Management (AUM) limits and growth milestones are fulfilled.
Pepper European Servicing (PES) offers end-to-end loan servicing, advisory & asset management throughout residential as well as commercial segments. The business is established in the UK & Ireland supported by longstanding customer relationships along with growing footprint in the budding markets of Spain, Greece & Cyprus.
As o 31 December 2019, Pepper European Servicing had total AUM of ~€40billion (~A$65 billion). It generated €92.9 million (~A$149.9 million) revenue and attained a normalised EBITDA of €20.1 million (~A$32.4 million) for the year ended 31 December 2019.
The upfront acquisition price means an Enterprise Value to EBITDA multiple of 8.2x or 6.0x after considering expected efficiency benefits along with deferred payments for current AUM protection.
The acquisition depends on relevant regulatory approvals and is projected to be completed in 2H CY2020. Once the acquisition gets completed, it would combine with the BCM business of Link Group.
Strategic rationale Behind the Acquisition:
The integration of Link Group’s BCM business with PES would create a leading loan & asset servicer of scale with high-quality management, a deep talent pool, & the required experience as well as skill to provide a powerful client proposition throughout Europe.
Funding the Acquisition:
The acquisition would be funded from the available cash and bank facilities of Link. It is expected that the acquisition of PES would result in double-digit accretive to Link Group’s Operating EPS in FY2021. Moreover, the acquisition would result in additional synergy and efficiency benefits over medium-term.
Citi would act as a financial advisor in this transaction.
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