ASX News LIVE | ASX Fintechs Rise With EML, Tyro, Zip, Resimac Reporting

The Aussie market lifted for a 2nd session on Tuesday. The #ASX200 index rose by 51pts or 0.7% to 7211. Miners were the standout, while consumer discretionary was strong as well thanks to gains in $WES. Tech stocks however continued to decline, and healthcare edged lower.

— CommSec (@CommSec) August 29, 2023

EML said its large net loss after tax of $284.8 million was largely a result of a $258.9 million non-cash impairment, attributable to the ‘challenged PFS business’.

This business featured heavily in a strategic review conducted alongside Barrenjoey to ‘assess potential strategic interest in EML to maximise shareholder value’.

An initial idea from the review is to separate the ‘profitable UK domiciled business PFSL, from the unprofitable Irish domiciled European business in order to improve performance and unlock value’.

Turbulent stock EML Payments [ASX:EML] is up over 30% in late afternoon trade after the market received well its FY23 results.

EML acknowledged its recent performance was sub-par, citing ‘challenged acquisitions [you don’t say!], disappointing performance, and ineffective leadership change in July 2022’.

But management thinks EML has turned a corner.

FY23 delivered results ahead of guidance, with the fintech seeing ‘early progress with material costs savings’ of $10 million for FY24 and more opportunities to up operating margin ‘from FY25 and beyond’.

But while revenue and underlying EBITDA were above its guidance, the latter was down 28% on FY22 and the former was only up 9% on FY22.

EML beat consensus guidance, too, up to a point.

Consensus forecasts had FY23 revenue at $242 million and EBITDA at $28.1 million, both undershooting the actual result.

However, analysts expected the net loss to be $147 million, but EML dished out a $284.8 million loss.

I’m still making my way through Zip’s full-year accounts.

I’m not too sure why!

But here’s some more tidbits.

Zip upped its charges to users and merchants alike to offset higher financing costs.

ANZ and the US core segments remain unprofitable, but ANZ is seemingly approaching breakeven.

Source: Zip

Restricted cash’s share of Zip’s total cash holdings is rising. In FY22, restricted cash was $58.4 million. In FY23, restricted cash totalled $124 million.

As a percentage of total cash available, Zip’s restricted cash rose from 19.5% to 45%.

Excerpt from Vern Gowdie’s latest commentary.

***

Did you happen to see this quote from The New York Times on 10 February?

‘Much of the recent rally was powered by once-wary investors, who avoided stocks at the end of last year, jumping back in the market this year…investors seem more willing to take on risk when they have a whole year ahead to recover from setback.’

Oh, I forgot to put the year.

The New York Times extract is from 10 February…2001.

It’s only natural that habits, formed by speculative manias (like the dot-com boom), create reflex reactions.

Buy-The-Dip. The worst is over. The year ahead will be better. Recovery is at hand.

There are times when impulsive responses work and there are times when they don’t…

Source: Macro Trends

And the reason why the year ahead got worse (not better) is pretty straightforward.

Earnings disappointment.

After the share market peak in 2000, S&P 500 earnings fell BELOW the regressed EPS (Earnings Per Share) trend…dropping from around US$50 to almost US$20…

Source: Crestmont Research [Click to open in a new window]

In the early stages of a bear market, the math begins to change.

Earnings start to disappoint. Profit margins begin to get squeezed.

And another often overlooked (but extremely important) dynamic is also undergoing change.

The multiple (Price/Earnings ratio) applied to shrinking earnings…it too is retreating to a lower number.

From its dot-com bubble high of 40 times, the Margin-Adjusted P/E (MAPE) shrank to 20 times.

Source: Hussman Strategic Advisors [Click to open in a new window]

The math is very simple.

Earnings of $10 times P/E of 40 equals $400

Earnings of $8 times P/E of 20 equals $160

Change the earnings and multiple inputs and you get a HUGE price difference…a fall of 60%.

While the cold hard numbers, that ultimately determine price, are undergoing change, the emotional drivers are much slower to adjust.

In the early stage, investors are still living in yesterday’s market…a time when any financial troubles seemed so far away.

This is why, when tomorrow’s market arrives, it comes with such a shock…with troubles few are expecting.

https://www.dailyreckoning.com.au/same-stories-different-bubbles/2023/08/29/

Brain-computer interfaces will soon see us ‘lying on a beach on the east coast of Brazil, controlling a robotic device roving on the surface of Mars’.

Fully self-driving cars will be everywhere by 2020.

Electric vehicles will replace all internal combustion engines by 2025.

Advanced economies are on the brink of an ‘AI revolution which could fundamentally change the workspace’.

We have a habit of getting carried away by technological advancements.

An exciting new technology can lead to outlandish claims, as feverish extrapolations compound into fanciful projections.

Some of these claims were listed earlier.

Clearly, AI is another major technological advancement set to influence society. But we must not get carried away.

Especially as investors.

Market interest in AI is febrile, with search volume for ‘AI stocks’ spiking this year.

Source: Google Trends

But a hot theme like this should not be hopped on with abandon.

Investors must figure out whether the AI hype will endure or fade.

https://www.moneymorning.com.au/20230829/investing-in-ai-hype-business-models-and-risks.html

While Zip pushed ‘cash EBTDA’ onto centre stage, backstage, the real net income told a less flattering story.

Zip recorded a total net loss in FY23 of $401 million.

That’s quite impressive, considering Zip’s market cap is just shy of $300 million.

But it was an improvement.

FY22’s net loss was over $1 billion!

Source: Zip

Some interesting line items in that income statement:

• Bad debts/credit losses fell 34%
• Interest expense unsurprisingly skyrocketed 123%
• Zip massively cut back on marketing, by 62%
• Corporate financing costs ballooned 256%

 

Here are the Zip results by the numbers:

• Revenue up 16% to $693.2 million
• Transaction volume up 7% to $8.9 billion
• Transactions up 8.3% to 72.7 million
• Active customers down 3.5% to 6.2 million
• Revenue margin up 60bps to 7.8%
• Net transaction margin of 2.8%
• Net bad debts of 2%, down from 2.7% in FY22
• Core cash EBTDA of negative $48.2 million

Zip said Zip US delivered a positive cash EBTDA result for the full year, with Zip US exiting FY23 cash EBTDA positive on a monthly basis.

Signs of improvement.

But the signs are murky, qualified in scope (cash EBTDA) or time (exiting FY23 on a monthly basis).

Buy now, pay later.

What a ride.

It feels like a different era, the days when stocks like Afterpay, Zip, and Sezzle were spiking higher, nabbing big fashion retailers on their platform.

Now the BNPL space is sparse and desolate.

The heat from buying frenzy replaced by a frigid wind.

But Zip is doing its best to keep the mood light and hopeful.

Today, the BNPL firm releases its FY23 results, highlighting ‘significant improvement in cash EBTDA’ (not EBITDA).

Zip thinks its on track to be cash EBTDA (not EBITDA) positive ‘during 1H24’.