Equals Share Discussion Threads

[ashleyjv] 09/5/2024 16:18

not later than 5.00 pm on 15 May 2024 (Wednesday)

[74tom] 09/5/2024 15:44

Note that the chairman's statement on page 7 of the annual report isn't in the final results RNS

[74tom] 09/5/2024 15:41

Ha.

I was going to respond to the above points but then just noticed the chairman's statement in the annual report. Can't believe I didn't spot it sooner. Probably because it's the only time higher interest rates are referred to in the annual report...

"I am pleased to report another record year for your Company with a 35% growth in the value of transactions, 37% growth in revenue, 70% growth in adjusted EBITDA, and 127% growth in Adjusted Basic EPS. The growth in services to businesses is the source of this, with higher interest rates also contributing to EBITDA growth."

So they are making material interest income, but are choosing not to disclose how much...

What's even more curious is that in the "ADJUSTED EBITDA BRIDGE FROM FY-2022 TO FY-2023" on page 15, they don't refer to interest income at all!

I think it's very very questionable not to break this out, if EBITDA growth has benefitted from higher rates then this benefit has also flowed into PBT, as there is nothing disclosed below the line...

[ltinvest] 09/5/2024 12:48

However I am of the opinion that generally communication from equals and general updates are pretty good. I would think if interest earnings were significant it would have been mentioned in an earnings report or earnings call already as they generally seem pretty transparent.

[ltinvest] 09/5/2024 12:43

Perhaps an email to investor relations might help. If a few people ask similar questions it may get brought up and provide some answers

[mcl1] 09/5/2024 11:49

Transparency is key with small cap stocks, so Ian S-T should clarify this point at the AGM. If he doesn't volunteer it,(that's concerning as I'm sure they look at these forums), then hopefully a shareholder will raise it.

[anon12345] 09/5/2024 11:22

74tom - I agree that EQLS have benefited from interest income, but it's not as material as you think. For example:

- their revenue grew in line with transaction volume last year. If interest income ramped hugely, you'd expect the revenue to far outpace transaction volume.
- gross margin has gone up due to revenue mix shift (ie solutions revenue), is still lower than a direct comp like Alpha, and GMs going up with scale is an inherent feature of these businesses (they explain this pretty well in their cap markers day from last year - you should take a look)
- interest rates stopped rising 9 months ago, but their run rate revenue per the most recent trading update is about 25% higher than what they were running at 9 months ago (again, almost entirely due to their Solutions business).

[74tom] 08/5/2024 13:27

davidosh, they are both fintech's that handle very material volumes of client cash. They are in the same bucket as WISE, CMCX, IGG, AGFX, CSFS, Adyen and many others. To my knowledge EQLS is the only one to not report on interest income - but they did in the past;

Back in 2019 EQLS said the following;

"Included in this segment is interest earned on house funds. Given the low interest rates and certain regulatory restrictions governing the deposits on which the Group can earn interest, the Group earned a total of £150k in interest during the year (2018: £145k). At 31 December 2019 the Group had fiduciary responsibility for a total of £52.4 million in bank accounts not included in the Group's consolidated balance sheet (31 December 2018: £48.0 million). Interest income has been included in the segmental revenue where earned."

2019 was also when they last mentioned off balance sheet funds;

"The funds attributable to customers are shown as memorandum item. Consistent with 2018, these funds, held on behalf of customers of both CardOneBanking and International Payments have been excluded from the balance sheet following legal advice received in connection with the risks and rewards to the Group. Nevertheless, these funds remain within the fiduciary obligations of the Directors and are included in the table above as an 'aide-memoire'. It is notable that these balances grew by 9.2% to £52.4 million up from £48.0 million at 31 December 2018. This reflects the growth of the underlying use of the Group's platforms."

Alpha said the following in their recent uplisting prospectus;

"Interest income is a natural by-product of the Group’s Alternative Banking Solutions division (“ABS”). Alpha generates interest income on client funds that are aggregated and held overnight, off balance sheet, as part of the Group’s safeguarding arrangements for its alternative banking solution. Alpha recognises this interest as Net Treasury Income (“NTI”) rather than as underlying revenue from its core FX Risk Management (“FXRM”) and ABS activities."

The key phrase in common is 'OFF BALANCE SHEET'

If EQLS had £52m in off balance sheet accounts in 2019 and made £150k when interest rates were 0.75%, what are they making today?

[davidosh] 08/5/2024 12:56

74tom...Alpha is a different business, whose alternative banking arm can hold deposits for periods of time. EQLS is a payments platform

[74tom] 08/5/2024 11:57

I've seen many stupid IC articles in my time, but think this one takes the biscuit;



The author clearly hasn't done any actual research, just relied on numbers from whichever data feed they get.

All 3 of WISE, EQLS and ALPH report their revenue in different ways;

WISE splits out interest income from customer balances but reports & forecasts it as underlying revenue

ALPH splits out interest income but DOES NOT report & forecast it as underlying revenue

EQLS doesn't split anything out, but if WISE, ALPH, AGFX & CSFS all benefit significantly from interest income on customer balances then it seems unfathomable that EQLS has missed out

What this means is that if you compare the 3 without analysing their accounts then you are going to come to some foolish conclusions - as Paul Jourdan of Amati highlighted back in December

ALPH reported PBT of £115m last year & should do significantly more this year, it's current EV is £700m, so EV / PBT is 6x, not the 14x 'bearbull' thinks

If EQLS traded at the same valuation as ALPH, then the £26m forecast EBITDA for FY24 would value the business at £156m / 83p a share

If ALPH traded at the same valuation as EQLS then it would be trading at £30 a share

And yet the column reckons they trade at a 50% discount to ALPH, so shareholders should expect a 200p+ offer, and still be disappointed!

If you plug in the actual figures (and the fact EQLS don't disclose interest income) then the article would have to have a completely different narrative.

[74tom] 08/5/2024 08:32

From this morning CSFS results;

"Other operating income represents interest generated from client cash balances. The recent changes to the interest rate environment have meant that these accounts can be interest bearing, whilst maintaining the safeguarding requirements. Under the terms of the Group's Electronic Money Licence, the Group is not able to pass any of the interest earned back to the clients."

They earned £350k interest income in FY23 and only really provide spot FX trading, hence you would expect minimal holding periods for client cash.

I strongly suspect EQLS are making ~£5-10m PA in interest income & because they don't disclose the number it is falsely inflating their underlying performance.

I actually laughed out loud when I read the IC bearbull commentary about EQLS being cheap vs ALPH, inclusive of interest income ALPH is on a PE of just over 10x!

The next PUSU deadline is in a week, will the charade continue?

[dave2608] 07/5/2024 20:22

I'm pretty sure that I heard IST say in an interview that he expects the bottom line to grow faster than the top line. That'll do for me.

I personally think this is worth more than £2.00. IMO any offer accepted below would be a travesty. One thing I've noticed as I've followed this company is that the story just continues to get better and better. It's a belter of a share!

I'll make what to many might seem like a crazy comment. I'd be disappointed if anything less than £3 was accepted, nevermind £2, that's how optimistic I am about the prospects here. They are making money hand over fist and it's accelerating!

[spectoacc] 05/5/2024 08:23

As the IC article pointed out, we've another PUSU deadline a week on Wednesday, but also the AGM a week after that (22nd), when you'd imagine they don't want to field endless questions on this.

Hence hopefully it's either yay or nay - either a bid of 200p+ (who'd accept any lower?) or in my view more likely, EQLS walking away from further talks.

The latter isn't necessarily a negative - at current run-rate, they ought to be trading well above 200p before too long IMO.

[squeakeasy] 04/5/2024 19:26

Absolutely. No need for additional cash / minority investor. Could easily raise from a placing if they wanted but don't need to. I'm increasingly thinking that either there has to be a substantial knock out bid or the company continues to do what it's doing. Why leave all the gravy for others. Unless IST is in too much of a hurry to cash in and retire which ought not to be the case as it's a great business doing well and he's already well rewarded.

[anon12345] 04/5/2024 17:43

I would also be very surprised if we don't have concrete news by the time of the AGM on May 21. Directors will not want to face shareholders after a 7-month process with no news, so they would be asking interested parties to submit binding bids in advance of that.

[anon12345] 04/5/2024 17:31

Agree about not needing a minority investor in terms of primary capital.

There are plenty of private market transactions for highly comparable businesses being bought at 4-6x revenue. Ebury raised from Santander last year at 5x revenue and Ebury is barely profitable, Corpay has done a handful of deals (Cambridge Global, Global Reach, Afex) at about 4x revenue.

At 3x my estimate of £125m FY24 revenue, EQLS would be north of £2. The huge gap between private and public market value of the asset is why they are running this process and probably explains the very elongated negotiation process - buyers would be pointing to the stock price whereas EQLS would be pointing to private market transaction multiples as the right valuation.

[66fingers] 04/5/2024 00:59

I'm not sure what benefit it would be to Equals boars to bring a m8nority investor on board. It may enable the company to scale up quicker but its already throwing off money so I'm not sure a minority stake would offer?

[mcl1] 03/5/2024 23:31

This is from the MDP website referencing financial sector investments.

MDP’s Financial Services team has a history of both control and minority investing. Our focus is to find high-quality businesses led by talented management teams and work together to determine the optimal deal structure. Ankura and Navacord, while we have also recently completed minority structured equity investments in EVO Payments and Ardonagh Group.

Perhaps we're all wrongly assuming that MDP will propose a takeover, as opposed to just becoming an investor......maybe this is the cause of the delay. It would also be a huge disappointment for shareholders.

[swiss paul] 03/5/2024 19:07

Its EQLS who allow the PUSU so the ball is most firmly there side of the net.

If EQLS rejected the PUSU then it would be game over and MDP would either get off the pot or do the business.

[amt] 03/5/2024 08:55

Better just to move to a decent transparant stockmarket where small shareholders are treated with a bit of respect.

[carcosa] 02/5/2024 09:43

With respect to Madison Dearborn Partners they also provided an "indicative no-binding proposal".

Perhaps it should be remembered that Madison Dearborn Partners, Railsr Consortium and FleetCor (now CorPay) were all 'outed' by the third parties. There remains the possibility that one or more unnamed parties are also in the fray.


The UK Takeover Panel tends to operate within the 'spirit' of the rules rather than the rules themselves.

The 2011 reforms by the UK Takeover Panel regarding the "Put Up or Shut Up" (PUSU) requirements were prompted by concerns over the potential for extended periods of virtual bid uncertainty, which can be disruptive for the target company and its stakeholders.

The PUSU rules aim to provide a reasonable timeframe for potential bidders to decide whether to formally announce a firm intention to make an offer for a company or withdraw from the process altogether.

Specifically, the 2011 reforms introduced the following key changes:

Deadline for making a firm offer: Once the target company is publicly identified as a potential takeover target (through a "leak" or announcement), the potential bidder has 28 days to either announce a firm intention to make an offer or walk away. This deadline can be extended in certain circumstances as we all know by now!

By introducing these deadlines, the Takeover Panel aimed to provide a more structured framework, incentivising potential bidders to move more quickly and reducing the potential for extended periods of destabilising uncertainty for the target company.

There were a few high-profile takeover situations that highlighted the need for the PUSU reforms and served as catalysts:

Prudential's proposed acquisition of AIA (2010)
- This drawn-out saga saw Prudential pursue the acquisition of AIA, an Asian subsidiary of AIG, for over a year. There were multiple extensions and delays, keeping both companies in limbo. Prudential eventually abandoned the $35.5 billion deal in June 2010 after failing to get shareholder approval and cost some 350m

Kraft's takeover of Cadbury (2009-2010)
- Kraft made an initial approach for Cadbury in September 2009, but it took until January 2010 for a firm offer to be announced. The protracted nature of the bid caused significant uncertainty for Cadbury's employees and shareholders.

-BHP Billiton's proposed bid for Rio Tinto (2007-2008)
BHP's on-and-off pursuit of Rio Tinto over many months was seen as highly disruptive for Rio Tinto's business operations and strategy execution during that period.

These deals, among others, highlighted how virtual bid situations with no firm timetables could persist for extended periods, prompting the Takeover Panel to act and introduce the PUSU deadlines to bring more certainty and discipline to the M&A process in the UK

Whilst there remains occasional 'excessive' PUSU extensions longer than our 6 months they tend to be, from what I can gather, relatively rare and often mired in legal aspects of the takeover.

The next Equals PUSU deadline is 15 May 2024. Should a further extension be given at that time (without a paragraph or two stating the justification/clarification then to my mind it really has pushed the boat out too far and is making a mockery of the whole PUSU rationale. It implies the UK Takeover Panel has no 'teeth', at which point a few emails to the Panel may be in order:

As many have mentioned and alluded to it must be distracting for Equals Board and by implication share holders alike.

[masurenguy] 02/5/2024 08:36

"it would be a surprise if these EQLS talks don't conclude at a hefty premium."

Lets hope that you're right ! We are now exactly 6 months into the SR process without any clear indication as to whether an acceptable offer is likely to be made despite excellent financial results a couple of weeks ago. Revenue over last year increased by nearly 40% with pretax profit up 167% and eps having more than doubled. Net cash of £18.7m amounted to circa 10p per share, and with eps of around 7p, the PER was less than 20 at the current shareprice. Furthermore H1 has started really well with revenue up 30% and the expansion into Europe only just at the embryonic stage.

Despite all this, the shareprice has only increased by 25% since the SR was announced ! MDP have now had 6 months to undertake their DD and so far the only indication from the Railsr Consortium has been an "indicative non-binding proposal". There has been no further announcement by the company that any other predator has subsequently entered the fray. One can therefore only assume that a viable price offer is the outstanding issue and that the recent intervention from the Consortium might just be the wild card in the equation.

[owenski] 02/5/2024 07:55

AGFX raising funds RNS today.

Interesting statement from their CEO -

"Our core FX business and associated brand strength provide a strong backbone, however we have identified a sizeable opportunity to reposition and diversify the business as a true Cross Border Financial Solutions expert. This will allow us to take advantage of the ongoing structural changes in the market and the rapid growth in demand for alternative transaction banking solutions. By diversifying the product offering and accelerating the move into Alternative Transaction Banking we can continue to leverage our reputation in FX, while expanding our addressable market, reducing volatility and improving visibility and margin."

Equals Group already well ahead of the game on AGFX including growth and margins, quite shocking how poorly AGFX has been doing and even with funding it'll be a slow march uphill for them.

So, it would be a surprise if these EQLS talks don't conclude at a hefty premium.

[spectoacc] 30/4/2024 15:27

Agreed, but if it isn't a strong price (200p?) then I can't see shareholders voting for it.

Has indeed been strange - 6 extensions, presumably giving rivals access to books/strategy/management accounts, and all without so much as an indication of price.

Distracting and costly, can't recall another dragging out like this.

Hope it ends with a knock-out bid, but if it doesn't, EQLS has better days ahead of it IMO.

[mcl1] 30/4/2024 15:02

The whole process since the announcement of a strategic review by EQLS has been strange.

Referencing a company that immediately denied any interest, no real detail about other options and still no indication of what the management team think Equals to be worth.

I hope that EQLS has a strong, independent Board as I fear the management's interest may not necessarily align with small shareholders, particularly if they are retained by the takeover entity.