Equals Share Discussion Threads

[dave2608] 18/6/2024 16:44

You make an excellent point Anon12345. Solutions seems to be where it's really happening, both in terms of revenue and gross margin.

[anon12345] 18/6/2024 16:37

I agree it'd be nice to have interest income broken out. In the absence of breaking it out, you can normalize for it by looking at product by product gross margin - which they disclose very clearly for each half for the last 3 years.

Solutions gross margin went from 50% (2H22) to 60% in 2H23. I assume they will do about £50M Solutions revenue this year, so that'd be £30M gross profit at 60% margin vs £25M at 50% margin - the delta (£5M) might be a reasonable proxy for "extraordinary" interest income, although payments firms tend to get higher gross profit margins with scale so attributing the entirety of the gross margin increase to interest income when there's clearly been a very significant ramp in transaction volume is likely conservative.

[dave2608] 18/6/2024 16:20

dave, EQLS are to my knowledge the only UK listed fintech that hasn't disclosed how much interest income they earned in 2023.

As previous posters have commented. The firm have stated, its not that high. Anyway even if this were to be an issue, I don't see interest rates falling significantly, if at all. We're in stagflation. You, not me, suggested that the current boom in revenue is down to the current interest rate, so by your logic, yours not mine, if rates don't revert much lower, the booming revenue continues.


Wise, Alpha, Cornerstone, Argentex, CMC Markets, IG Group all have. EQLS are the only one of this group that have put themselves up for sale.

Are you suggesting they are trying to ditch a hot potato? That's exactly what you're suggesting. You make so many assumptions. One that a plan was hatched back in 2022. And it goes like this. Dress this company up. Hide interest amongst revenue because higher interest rates is ultimately how we make the money. We can make a fortune when the interest rate shoots up then at peak interest rate flog it. Like I've said before IST would need a direct line with Andrew Bailey, more than that IST would need to be setting interest rates not the MPC. I'm sorry but it's claptrap.


They put themselves up for sale 20 minutes after declaring their maiden dividend!
Why do this if underlying performance is so good?

Big deal. Do you seriously think potential buyers are interested in EQLS because of the paltry dividend?


Couple this with MDB pulling out & the plunging share price and I'm sure you'll agree that someone doesn't smell right.

Imagine this scenario. MDB are serious lowballers and they know the psychology inside out. Maybe IST thought he could pull off an appropiate deal but he wasn't prepared to be lowballed. People argue that they should have PUSUed earlier. Maybe but you haven't a clue what's cracked off behind the scenes. Looking at their growth recently, I don't smell anything unpleasant, just de-rampers like you tryng to get into peoples heads. My personal opinion is if they don't get a buyer, it's business as normal and the company continues to go from strength to strength. Unless I've missed something, I don't see anything lurking over the horizon.


From a previous post of yours:

"In the final results they disclosed that they had increased headcount by nearly 50%, my suspicion is that they were / are trying to present an attractive growth story to prospective bidders,

Do you seriously think bidders doing their due diligence wouldn't suss this one out? Really?

[74tom] 18/6/2024 15:37

@davidosh, why are you so defensive? It's not 'pure speculation' when the CFO & CEO have both confirmed on an investor call that the company earned a 7 figure sum in FY22. The only question is how large the FY23 figure was?

Again, I'll flag that in the 2019 annual report they disclosed that;

"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."

EQLS revenue has quadrupled since 2019 & they've added their 'solutions' platform, so disclosure like the above is surely more important now than it was back then. Why did they stop disclosing third party cash balances?

[dave2608] 18/6/2024 15:08

(@dave2608 - 4% is the new 0.4%, but weight of debt suggests no return to the higher rates of the past. Debt is inherently deflationary)

Looking at my last waterbill would be one example of suggesting that we are in a period of stagflation. So that suggests no return to lower rates of the past either.

Stuck between a rock and a hard place?

[74tom] 18/6/2024 15:00

dave, EQLS are to my knowledge the only UK listed fintech that hasn't disclosed how much interest income they earned in 2023.

Wise, Alpha, Cornerstone, Argentex, CMC Markets, IG Group all have. EQLS are the only one of this group that have put themselves up for sale.

They put themselves up for sale 20 minutes after declaring their maiden dividend!

Why do this if underlying performance is so good?

Couple this with MDB pulling out & the plunging share price and I'm sure you'll agree that someone doesn't smell right.

[davidosh] 18/6/2024 14:53

I think the point I was making is that without a figure highlighted in the actual accounts which clearly splits out interest earned on the cash funds held by the company then everything we think is pure speculation. To be honest even if the management have previously said that an amount is small that could still be a subjective view.

Personally I do not expect interest rates to return to the very low level they were at before 2023 but going forward we do need transparency on this as it is causing far too much concern without it.

[dave2608] 18/6/2024 14:24

I very much doubt if Andrew Bailey himself knows what future interest rates are going to be.

[74tom] 18/6/2024 14:24

davidosh, a 7 figure sum is over £1m, it's tosh to claim that you could ever include decimals in such a statement. The CEO said that 'it's definitely good for us' and had 'helped a bit' with regard to FY22. It will have certainly helped more than a bit last year & this.

Further, as per my earlier comment, they do not disclose interest income separately, it's wrapped up in top line revenue, so impacts everything on the P&L.

From your comments it's fairly clear that you don't understand the potential risk here, which is exactly why non disclosure of such an important item is fairly scandalous IMO.

[spectoacc] 18/6/2024 14:13

Lol. 7 figures is between £1m and £9,999,999.

Why there's a £1.75 at the end of your 5-figure sum, I'm not sure..

(@dave2608 - 4% is the new 0.4%, but weight of debt suggests no return to the higher rates of the past. Debt is inherently deflationary).

[davidosh] 18/6/2024 14:08

74tom stated...The CFO also confirmed that in FY22 they 'got a 7 figure sum'

Not wanting to dismiss that but of course minded that seven figures could be as little as 10,001.75

I personally think the amount of interest gained in total is relatively small compared to other providers and the finance line highlighted a small cost to the company until relatively recently.

[dave2608] 18/6/2024 13:50

Rates to pull back? Are we suggesting that at 5.25%, interest rates are abnormally high and are soon to revert to the norm of around 0.25%. History over the last 49 years (1975 to present) would beg to disagree and historically over this longer period 0.25% isn't the norm and 5.25% isn't high. Now the people who state the logic that as interest rates fall, Equals suffers, and that Equals is currently booming purely because interest rates are abnormally high at 5.25% also have to accept that interest rates may indeen stop as they are and Equals continues to be the beneficary. What if the long term interest trend is gradually rising?

[ltinvest] 18/6/2024 12:43

This has been my concern more recently as interest rates are expected to start coming down. Sort of a double edged sword. On one hand revenue will be lower than expected which may in turn effect the growth story. On the other hand we could be in for a bumper cash pay out or share buyback with the extra interest income cash. My thinking is that as the business grows the increase in client balances will help to offest the loss of interest income as rates come down so slow and steady cuts would be better than larger faster cuts in rates. In any case I think it should be split out or a figure given for transparency. Hopefully we get an answer at the trading update in July.

[74tom] 18/6/2024 11:14

I note that EQLS discussed other operating income in the Q&A section of their 27/03/23 Investor Meet Company call, confirming that they allocate it to the business line which generated the balance. 'If it's a solutions customer that's holding XYZ with us then it will be part of solutions revenue'

The CFO also confirmed that in FY22 they 'got a 7 figure sum'

In H122 interest rates averaged around 0.6%, whilst in H222 they averaged ~2%, so to earn over £1m on average rates of ~1.3% is quite revealing.

In 2023 rates averaged 4.7%, so FY23 had around 260% more interest earning power than FY22, likely on higher balances.

Personally, I think it's extremely misleading to report interest income in this manner, it's akin to a bank reporting their income without disclosing their NIM.

In particular, when rates skyrocket from 0.25% to 5.25% within 18 months, it is wholly inappropriate to not separately disclose the benefit.

More to the point, why would any bidder value interest income on the same multiple as the underlying business?

[74tom] 18/6/2024 10:40

The bit almost everyone seems to be missing here is that any management team that decides to try and sell a listed company doesn't do so on a whim.

I'd hypothesise that the plan was made as far back as 2022, maybe even earlier, as in order to attract a bid you need to have attractive recent financial metrics and an exciting growth story to spin.

The question is what does the future hold now it appears that their plans have failed?

Have they over hired to push top line growth & how will annualising 110+ incremental new heads impact their financials?

As rates start to pull back, how much of their EBITDA / EPS will disappear?

Have they employed aggressive, short term sales tactics to drive revenue growth at all costs?

All will be revealed in the due course of time :)

[podgyted] 17/6/2024 23:10

Sold out in mid-December when what I thought was a good growth company turned into a binary decision on whether a bid would be forthcoming or not - this instigated by Equals management.

Watched with some incredulity since then as the deadline was forever extended.

I am waiting with interest on the TU as there must be some credence to the conspiracy theory that the strategic review was put in place because management were no longer so confident of the future.

But whatever happens management have egg all over their faces and the market is very, very slow to forgive.

Lets see.

[masurenguy] 17/6/2024 15:11

Latest post MDP withdrawal view from Paul Hill (positive) and Leon Boros (negative) with the latter mentioning that David Stredder (apparently positive) would have bought the shares that he sold.



"You pays your money and you takes your choice" Mark Twain

[big7ime] 17/6/2024 12:27

No chance of a deal imo and just want to get the TU to see if growth has continued.
Measurenguy can you pls stop changing the font on your posts, it is rather annoying. Nobody else feels the need for it.

[masurenguy] 17/6/2024 11:36

mcl1 - a loss, or gain, of value only crystallises when an investment is sold. Whether their decision to undertake an SR was a mistake or not still remains to be seen when its outcome is finally known. We have seen many speculative holders sell and move on since the MDP announcement last Wednesday but the average daily trading volume over the past 4 days is only circa 15% higher than 3 month daily average. So far there is no indication of any institutional selling.

The shareprice is down circa 15% since then due to the proportion of sells. Of course shareprices don't lie but they are based predominently on sentiment, particularly in the absence of any significantly positive or negative financial announcements. However, there is no question that the shareprice has been impacted by the uncertainty (which we know the market hates) surrounding the outcome of the SR and it is now circa 5% lower than it was when the SR was announced almost 8 months ago.

You quote the US markets and the FTSE as a benchmark but EQLS is an AIM listed company and the AIM All Share Index is up by 11% since the SR was announced at the begining of last November. If EQLS had tracked the AIM Index, the relative shareprice would currently be circa 121p, which is where it was the day before the MDP announcement last week

I posted my broad view on the potential shareprice range 3 months ago, based on a deal/no deal SR outcome and that has not changed although we have already hit the downside of that range based on some investor sentiment that a formal offer outcome is unlikely.
3 April #3182: For what it's worth, Simon Thompson in the Investors Chronicle thinks that 175p is a likely takeout price if an offer materializes. Nice if that happens but I think it would be closer to 160p. Downside, if no acceptable deal can be agreed, is probably circa 100 - 105p.

As previously stated, we can only wait and see.

[shallwe] 17/6/2024 11:09

I'm not a great one for hindsight, but I do wonder what the share price would have been should the strategic review not have taken place, I would not have been surprised if it would have been in the 140's.Never mind, you live and learn and I'm still holding on for a bumper payday - one day!

[thomas11] 17/6/2024 11:02

I must admit I am struggling to see how this strategic review is adding to shareholder value. Time to stop it and get back to running the business iMo

[mcl1] 17/6/2024 10:15

Masureguy sadly the share price doesn’t lie, so either there is a hitherto undisclosed issue, or the Board / mgmt team made a poor judgement call.
The fact we see their actions differently is irrelevant, there is no right or wrong , just a meaningful loss of value. Let’s not forget in the 8 months since this ‘review’ started the US markets are at record highs and the FTSE up 1000 points.
At a minimum their decision would seem a mistake.

[74tom] 17/6/2024 09:47

Glad to see the market is finally seeing sense here, my view is that this is uninvestable until they disclose the interest income split.

Dr Paul Jourdan of Amati was the one who flagged this issue, it was then confirmed by the chairman's statement in the annual report.

What is the true underlying EPS figure? Shareholders have a right to know this or they can't make like for like comparisons with prior periods...

[big7ime] 17/6/2024 08:55

If trading is good he should have released an update alongside the “bad news” or is that not allowed whilst a potential bid is in progress rules?

It’s opened a can of worms as his hands are tied and mkt hates uncertainty. Large holders will want to scale back to reduce risk, until this episode is put to rest and he Provides statement to settle the mkt.