Small Caps | Oct 12 2022
This story features TYRO PAYMENTS LIMITED. For more info SHARE ANALYSIS: TYR
Tyro Payment targets cost savings in a renewed focus on earnings under new management.
-Tyro Payments announces new cost savings program
-Savings on employee costs aim to deliver an additional $5m in earnings in FY23
-The company reported growth in loan originations and new merchant applications in the September quarter
By Danielle Austin
Analysts have responded positively to the announcement of a cost savings program from Tyro Payments ((TYR)), following a spike in costs in the last fiscal year. The company is targeting -$11m in annualised cost savings by FY24, aiming to realise -$5m of this in FY23 through slimmed down employee costs and a shifting employee mix.
The program will include a reduced employee headcount and changes to the current mix of permanent employees and technology contractors, as well as reduced discretionary operating expenditure.
The company intends to make cuts to non-revenue generating areas of the business without impacting on customer experience or product delivery times. Given anticipated cost savings, Tyro Payments has upgraded its earnings guidance for the current fiscal year to $28-34m, from $23-29m, reflecting a $5m or 19% boost to earnings.
Other positives in the company’s September quarter update included continued strength in core payments and uptake of banking products, with transactions up 59% on the previous comparable period. The company is benefiting from increased adoption of its loan products, with loan originations up to $32.7m, a 116% increase year-on-year, and new merchant applications up 17%.
New product offerings in coming months
The company is also set to improve its product offering over the next four months, preparing to launch TYR Pro, a next-generation terminal, and TYR Go, a reader offering an alternative solution for micro merchants. TYR Pro is expected to launch ahead of Christmas, and TYR Go in January.
Four database brokers have reported on Tyro Payments’ quarterly update and cost savings announcement. Of these two are Buy or Speculative Buy equivalent rated, and two are equivalent Hold rated. These four brokers have an average target price of $1.65, ranging from $1.40-$1.99.
Morgans (Add, target price $1.99) has found the announced cost savings program a positive start for Tyro Payments’ new CEO, given it sets a tone of heavy cost focus and intention to drive the operating leverage investors have been looking for.
This second consecutive positive update has seen the broker lift its earnings per share forecasts by 20% for each year in its forecast range. The broker found this week's market update impressive, but does see opportunity for Tyro Payments to drive further efficiencies.
Given the cost out program addresses market criticism that Tyro Payments has to date focused on total transaction value and revenue growth over earnings, Morgan Stanley (Equal-Weight, target price $1.40) expects this update to be well received by the market.
The broker expects industry consolidation ahead, and has factored this into its bull case scenario.
Ord Minnett (Accumulate, target price $1.70) finds Tyro Payments’ trading update and robust merchant acquisition to support its view that the company should continue to win market share from the big banks. The broker finds Tyro Payments to be in an accelerated growth phase, underpinned by best-in-class technology and a supportive industry backdrop.
Despite positives, Macquarie (Neutral, target price $1.50) remains cautious on Tyro Payments given the volatility of the current macro environment, alongside potential for competition to intensify. The broker’s earnings forecast remains at the mid-point of the company’s new guidance range at $30.8m.
The fifth broker in the FNArena database, UBS, has not responded to the latest market update. Its rating for the stock is Buy with a price target of $1.80.
FNArena's consensus price target, including UBS, is currently $1.67, suggesting 17%-plus upside from yesterday's closing share price.
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