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The company has emerged from a tricky 12 months in really strong shape
Thursday 29 Apr 2021 Author: Ian Conway

For most firms, 2020 was difficult enough, dealing with the impact of Covid on their business and managing the shift to remote working.

For electronic banking and international payments firm Equals (EQLS:AIM), which offered among its many services pre-paid foreign exchange cards for travellers backed by now-defunct German firm Wirecard,  it was even more tumultuous.

Yet with its bank-grade payments connectivity, partnership agreements with firms like Citi and MasterCard, superior customer experience and new product innovations, Equals continues to take market share among from the big banks while at the same time allowing customers to maintain their current banking partners.

We think these attractive dynamics make the shares worth buying with a 2022 price-to-earnings ratio of 20.5 (based on consensus forecasts) fully justified by the growth potential.

The UK payments sector becoming increasingly crowded with small, specialist operators, but Equals stands out for the breadth of its proposition both for businesses and consumers, including real-time settlement accounts with the Bank of England thanks to its membership of the UK Faster Payments Scheme.

As individual travel restrictions came into force, the firm redirected its efforts away from the consumer space and towards the business-to-business or B2B market, generating a more than 30% increase in transaction values to £2.84 billion, leading  to an 11% jump in B2B revenues to £20.3 million.

That wasn’t quite enough to offset the drop in business-to-consumer activity, but it meant that at the year-end total group revenues were only down by 6% to £29 million.

BLESSING IN DISGUISE

Meanwhile, the implosion of Wirecard in June last year due to an accounting scandal was possibly a blessing in disguise, as it pushed Equals to accelerate the development of its own in-house multi-currency card platform which had been in the works for some time.

By October 2020, the firm had completed the work, with both web and app support, and migrated its entire B2C customer base of over 150,000 cards. It was, as chief executive Ian Strafford-Taylor says, ‘a remarkable achievement’, and it has resulted in a superior platform with a better product and better economics for the firm.

The firm exited the fourth quarter in a cash break-even position, with earnings before interest, taxes, depreciation and amortization ahead of market forecasts, and the first quarter exceeded management expectations. Moreover, as well as being self-funding it has £9 million of free cash on the books, equal to 5p per share, which it can reinvest in the business.

Strafford-Taylor is also confident that, once travel restrictions are lifted, the £4 million to £5 million of revenues which it missed out on in 2020 will return, at no extra cost to the company, giving earnings a  major lift.

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