“Big kicker still to come” - Why Forager loves the Cuscal growth story

As part of our annual Outlook Series, Forager’s Steve Johnson named payments company Cuscal (ASX: CCL) as one of the ASX’s hidden gems - backing that conviction by making it the largest position in the Forager Australian Shares Fund.

But as any small-cap investor knows, conviction must be continually tested. Earnings season is where the thesis either holds or cracks.

On the latest result, Portfolio Manager Alex Shevelev is standing firm. The stock jumped nearly 5% in early trade, and Forager remains upbeat on Cuscal’s acquisition of payments provider (and competitor) Indue and the synergies ahead.

Management is guiding to $15–20 million in post-tax cost synergies, 25%+ earnings per share (EPS) accretion and return on invested capital (ROIC) above 20% by FY29.

“The big kicker is still to come,” Shevelev says.

“As the acquisition of Indue yields its expected synergy benefits, we think earnings nearly double from last financial year to FY29.”

Alex shares his thoughts on the latest print below.

Key numbers to note

Note: As Cuscal is undercovered by brokers, meaning there are no reliable consensus estimates for comparison.

• Revenue up 10% to $273.0m
• Total net operating income up 10% to $161.5m, with Indue contributing $5.3m following its 1 December 2025 completion
• Underlying NPAT up 13% to $24.2m
• Interim dividend of 4.5 cps
• FY26 underlying NPAT guidance upgraded to mid-teens growth, implying $43.0-44.9m vs. ests of $42.0m (2% beat at midpoint)
• Indue expected to deliver EPS accretion of over 25% and ROIC of over 20% by FY29, with $15-20 million in annual post-tax cost synergies fully realised by FY29
• Acquisition is expected to be dilutive to statutory EPS in the first two financial years due to integration costs and client transition timing

Do you currently hold the stock and what is your rating?

We hold Cuscal as the largest position in the Forager Australian Share Fund, so would certainly rate it a BUY.

What matters from the results: What are the 2-3 key metrics for CCL and how did they perform in the latest results?

With transaction volume growth a few percentage points better than the market expected, first half profits came in meaningfully better. Net profit was $24.2m, up 13% from the prior year or up 11% excluding the Indue acquisition. 

With cash now deployed for the acquisition of the largest competitor, Indue, second half earnings are guided to represent 45% of the full year number. 

With the strong first half, guidance for the year has been raised to now be high single digit volume growth and mid-teens net profit growth.

How do those outcomes affect the outlook: What is your outlook over the medium term? 

The business, financial plumbing for many of the smaller Australian banks, should continue to benefit from transaction growth driving higher net operating income over the next few years. Organically that would translate to low double-digit net profit growth. 

But the big kicker is still to come. As the acquisition of Indue yields its expected synergy benefits we think earnings nearly double from last financial year to the 2029 financial year.

Let's touch on those synergies. Management guided to $15-20m in post-tax cost synergies; 25%+ EPS accretion & ROIC of 20% with the Indue integration. Based on the latest set of earnings, are these synergy numbers achievable or ambitious?

The integration process has kicked off and looks to be tracking in line with expectations at the announcement of the acquisition six months ago. The businesses had operated very similar fixed cost people and systems infrastructure with significant benefits from combining these. It will take time but the synergy numbers are very achievable.

While income isn't Forager's main goal, was the lack of a dividend increase disappointing given that every other metric seemed to have improved?

Not something that worries us. Delivering on organic growth and synergies from the merger will make for much larger dividends down the line!

What should investors be paying attention to as the story unfolds: What are the biggest upside drivers and what are the biggest risks?

Consistent delivery of synergies will be important here - management will need to realise the synergies over the next few years. With large combined cost bases and the use of AI for some tasks, there may well be an opportunity to exceed the targets.

Meanwhile, focus will also need to be on controlling the overall business costs, mostly people, while continuing to grow transaction volumes and navigating any regulatory changes.

A good analyst knows where their blind spots are: What could you be wrong about?

This is a complicated and regulated business. On the one hand, that makes it difficult to compete with, on the other hand, it makes operational execution key, especially when it comes to the critical components like cybersecurity.

Is there any strategic initiative or key metric in Cuscal the market is undervaluing or missing outside Indue?

One of the company's segments - Regulated Data Services - is loss-making at present. If it comes back to breakeven, either from growing revenue or cost reductions over the next few years, this should boost reported profitability.

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Forager Australian Shares Fund

Australian Shares

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