MIDAS SHARE TIPS: Equals Group could pay you more than holiday cash
Depending on who you ask, the financial technology market is valued at anything from £150billion to £250billion.
The range speaks volumes. Statistics are unreliable, definitions vary and it is hard to put a value on an industry that is immature and accident prone.
Even the most ardent fans would admit that fintech, as it is known, has seen some high-profile disasters, Silicon Valley Bank being a case in point.
Bureau de all change: Equals started out providing tourists with travel money, but found more lucrative work serving smaller businesses too
And despite years of rapid growth, very few operators actually make a profit. Equals Group is different.
The firm is making money, expanding fast and expects to start paying dividends by the end of this year.
The shares are £1.16 and should rise materially, as chief executive Ian Strafford-Taylor develops the business, adds customers and moves into new parts of the world.
Founded more than 16 years ago as FairFX, the group initially focused on providing consumers with travel money via pre-paid cards. Rates were invariably better than bank or Post Office deals and the business prospered
Competition intensified, however, so Strafford-Taylor decided to add another string to his bow – offering foreign exchange rate services to businesses, particularly entrepreneurial firms with anything from 50 to 500 employees.
The decision proved a good one. Companies of this size feel increasingly unloved by High Street banks and are keen to shift their custom elsewhere.
Traded on: AIM
Contact: equalsplc.com or Buchanan Communications on 020 7466 5000
Traditional banks are often bogged down with legacy systems too, so transferring and receiving money from one country to another through them can be cumbersome and costly. Strafford-Taylor had none of these issues and, from the start, was determined to offer top service and excellent value, with better exchange rates, swift payments and expert advice when needed. Providing all this has been no mean feat.
The company, renamed Equals in 2019, has obtained licences and regulatory approval across the world. That means customers can now do business in more than 100 currencies, opening secure accounts and completing transactions in minutes.
Payment cards are available too, a boon for firms involved in e-commerce. These cards can carry limits to ensure staff do not overspend on overseas trips.
About 150,000 consumers still use FairFX cards but the firm is seeing most growth on the business front, attracting more than 30,000 firms in every line of work, from fashion to health to film production. Larger companies are also seeing the value in Equals’ offer.
About 150 big businesses have signed up for at least one service and the numbers are rising rapidly. Interim figures last week showed a 43 per cent surge in turnover to £45million for the six months to the end of June compared with the same period in 2022, with pre-tax profits soaring from £900,000 to £5.8million. Prospects are good, so much so that Strafford-Taylor plans to pay a 1.5p maiden dividend for 2023, rising steadily thereafter.
Brokers expect annual profits of £19.5million, up 65 per cent year-on-year, and rising to £23million in 2024, with a 2p dividend. Growth so far has been organic and via acquisition, and more deals are likely, allowing Strafford-Taylor to offer customers more services in more places quickly and efficiently.
MIDAS VERDICT: Equals Group is that rare beast – a cutting-edge financial technology firm that is expanding, profitable and about to pay dividends. At £1.16, the shares should deliver long-term growth.
Two tips rise 40% after bids
It seems as if every week brings fresh evidence that American investors value British firms more highly than their domestic counterparts do.
Some firms are choosing to float outside London. Others are being snapped up by canny international predators.
While policymakers wrestle with this problem, there are occasional benefits for British shareholders.
In the past fortnight alone, two recent Midas recommendations have received takeover bids from overseas bargain-hunters.
Last week, specialist delivery firm DX Group admitted to a 48.5p a share approach from private equity outfit HIG, a deal that has already been accepted by several large shareholders.
Just days earlier, royalties firm Round Hill Music succumbed to a £376million bid from Nashville-based music giant Concord.
Midas tipped DX at 32p in July and the shares closed at 43.5p last week, below HIG’s offer price. Round Hill, tipped at 63p in June, rose to 90.5p after the board advised shareholders to accept the Concord offer.
That deal is now almost certain to go through, handing investors who bought in June a handsome windfall.
The DX bid is slightly less certain. HIG has until October 9 to make a firm offer, and it may walk away before then.
But other bidders could emerge, as DX fans believe the stock is worth at least 50p.
Nervous investors may want to pocket their 32 per cent gain now. Others should hold on and see how this party unfolds.