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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Willard Lloyd

I was out at a pub in Melbourne, noticed they used Tyro for their payments. I asked the manager what they thought of the service they provide, he said if they go down, he is on the phone for 2 hours waiting to speak to someone from their team.