3 potential catalysts for Tyro

David Allingham

Eley Griffiths Group

Tyro Payments, which reported today, has a 17-year history as a non-bank merchant acquirer facilitating card payments in Australia on behalf of 32,000 merchants. 

Tyro's first half 2020 Total Transaction Value (TTV) of 11.1B (up 30% on pcp) demonstrated it is winning market share from the 4 major banks by focusing on SME’s in 3 key industry verticals (retail, hospitality and health). 

Tyro only has a ~ 12% market share of these three verticals which are estimated to represent ~$170B of TTV p.a. 

The other operational feature of the result was the scale benefits that are starting to appear in the P&L, best highlighted by the below chart of operating expenses as a % of revenue. 

You can see that expenses as a percentage of revenue have declined by 10% over two years. This trend is likely to continue as Tyro continues to scale its TTV, underpinning strong EBITDA margins over time.

The market is currently pricing Tyro on 15x 1-year forward (FY21) Gross profit (GP). This multiple is in line with a number of similar listed payments companies offshore and is reflective of the high margins these business models have demonstrated over time as they scale. We think consensus expectation of $124m GP in FY21 look too low.

 3 potential catalysts ahead

Continued market share gains and TTV growth of 30%, combined with further leverage on the expense line, should see greater confidence in the long term EBITDA margins of the business. 

A move into new verticals, such as accommodation, should see Tyro expand its addressable market beyond $170B. 

We also believe there is significant value in Tyro's innovative banking business where their lending products to SME's seem to be gaining significant traction. Loan originations were up 82% to $37m in the first half result. 

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Portfolio Manager
Eley Griffiths Group

David Allingham is a Portfolio Manager at Eley Griffiths Group and has over 16 years’ experience analysing small and emerging companies at Eley Griffiths Group. Prior to joining EGG in 2004, David worked in marketing at EMI Music Australia. David...

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