Boku’s H1 trading update confirmed continued strong growth in the Payments business and progress in growing the Mobile Identity business. Management’s expectations for FY19 are unchanged; we maintain our forecasts, which assume seasonally stronger payment volumes and a step-up in revenues from the identity business in H219.
Boku expects to report revenues of $22.5–23.0m for H119 (+c 33% y-o-y), of which 14–16% was contributed by the Mobile Identity business (c $3.2–3.7m). Total payments volume (TPV) for the Payments business grew 49% y-o-y to $2.3bn and monthly active users grew 48% y-o-y to 15.3m. Within the Mobile Identity business, Boku was monitoring 74m phone numbers in June 2019 compared to 12m in December 2018 and processed 140.9m billable transactions in H119 (+100% y-oy). Gross cash at end H119 stood at $27.8m compared to $32.3m at the end of FY18. Average daily cash in June 2019 was $22.2m compared to $24.4m in December 2018.
The company believes revenue and adjusted EBITDA are on track to meet expectations for FY19, taking into account the typically seasonally stronger H2 and the scaling up of revenues in the Mobile Identity business. We maintain our forecasts. We note that in FY18, H1 revenues made up 48% of annual revenues and H1 TPV 43.6% of annual TPV; using the top end of the expected H1 revenue range, in H119 Boku would generate 43% of our annual revenue forecast and 43.5% of our TPV forecast. The ramp up of the Mobile Identity business through 2019 is the main factor in this increased weighting to H2 and KPIs are so far moving in the right direction.
The stock has gained 83% year to date as in our view, investors have increased confidence that the identity services business is making progress towards FY19 targets. On an EV/EBITDA basis, Boku is trading at a discount to peers in FY20– 21e. On a P/E basis, Boku trades at a small premium to peers for FY19–20e, before moving to a small discount in FY21e. Boku’s strong cash generation is reflected in its above-average free cash flow yield for FY20 and FY21. Confirmation of contract extensions and new merchants for the Identity business could drive further upside from this point.