Restrictions relating to COVID-19 have had a mixed effect on Boku’s H120 performance, with the Payments business benefiting from increased demand for digital content, while some Identity customers saw weaker demand for their services. Despite this, Boku reported adjusted revenue growth of 9% y-o-y and, demonstrating the operational leverage of the business, adjusted EBITDA growth of 84% y-o-y. With guidance unchanged for FY20, we maintain our EBITDA forecasts.
Boku reported H120 group revenue and EBITDA in line with its July trading update (growth of 5% and 50% y-o-y, respectively, or 9% and 84% on an adjusted basis). As previously highlighted, COVID-19 lockdown restrictions benefited the Payments business through a combination of higher user numbers and lower operating costs, driving adjusted revenue growth of 14% y-o-y and adjusted EBITDA growth of 45%. The Identity business saw existing customers hit by the restrictions and a tougher environment for signing new business, with revenue down 21% y-o-y; although tight cost control reduced the EBITDA loss to $2.0m from $2.3m a year ago.
In H2, the Payments business will benefit from the first-time consolidation of Fortumo (acquired 1 July), which bolsters the company’s dominance of the directcarrier billing market, and should see a growing contribution from eWallet services as more merchants go live. In the Identity business, the company is focused on signing up new customers and expanding its carrier network. Management is confident that it can at least meet consensus expectations for FY20. We have made minor changes to our forecasts to reflect H120 performance, although our EBITDA forecasts for FY20–22e are unchanged.
On EV/sales and EV/EBITDA, Boku is trading at a discount to the average of payment processor peers and identity management peers. Reflecting the different growth and profitability dynamics of the Payments and Identity businesses, we use a sum-of-the-parts approach to assign value to each separately, generating a group equity value of 124p per share. Excluding the Identity business entirely, Boku would be worth 117p per share, still well ahead of the current share price. Key catalysts for the share price include a return to revenue growth in the Boku Identity business, new major merchants being signed up and a growing contribution from wallets.