Our first foray into the capital markets of 2017 is a small-cap Canadian based FinTech stock, which is in the enviable position of being profitable in the first nine months of 2016 (Q4 has yet to be announced). Profitability is a rare commodity in small-cap stocks, and this company combines it with a significant growth profile.
NEW PROSPERITY STOCK ALERT:
FIRST GLOBAL DATA LIMITED ( TSX.V: FGD $0.265 )
Disrupting the global payment and remittance banking sector
We met Andre Itwaru, the President and CEO of First Global Data (FGD) this past week and we came away from our meeting with great expectations. We feel that FGD is currently undervalued and has significant upside due to its currently profitable (yes, the company is making money) business and its expansion strategy.
First Global Data has developed a great technology platform
FGD is a FinTech company with two main lines of business: mobile payments and cross border payments. It has built this leading edge financial platform to leverage the convergence of compliant domestic and cross border payments, money transfers, shopping and peer-to-peer payments. The team has built a suite of mobile services through its PAYQWIK moble wallet offering. Using your own smartphone that you carry around with you every day, PAYQWIK allows you to pay bills online, at the store, on the bus, or at the theatre. You can even book and pay for flights and hotels, or conduct online banking; sending money abroad, all at the click of a button. It also is a licensed money service in Canada and the United States which allows the Company to move money internationally. The company adheres to the strictest banking rules and is audited annually by FINTRAC in Canada. Its corporate and operational compliance is a priority.
“Within five years, half of today’s smartphone users will be using their phone and mobile walets as their preferred method for payments.” – Peter Olynick, Carlisle & Gallagher
Generating revenue on a profitable basis TODAY!
For the first nine months of fiscal 2016, FGD made approximately US$850k on $3.4 million of revenue. On an EPS basis, FGD earned $0.006 versus a $0.025 loss for the same period in 2015 on revenue growth of over 1000% and a cost reduction of 25%. The ability to cut costs while also growing revenue is a testament to the strength of FGD’s partners and agreements, the leadership teams ability to execute a fiscally controlled business plan, and its willingness to demonstrate austerity and cost control even during periods of high growth. These are all traits of a blue chip, dividend-paying company that mainstream investors and large institutions would look for in an investment.
The value of FGD’s business in North America
FGD’s profitable operations (so far) are centered in North America. FGD has money service licenses in 22 U.S States with plans to obtain licenses in all 50 States by the end of 2017. These licenses could be worth many multiples of the current stock price, making FGD an attractive buyout target for a company looking to obtain those licenses as well as driving the company to profitabiity. FGD takes KYC, AML and ATF regulatory guidelines very seriously. In a boon to shareholders, in early December of 2016, FGD secured the directorship of the Honourble Douglas Smith, former Assistant Secretary of the US Department of Homeland Security. With a formidable track record in the highest levels of both government and private business enterprise, Mr. Smith will surely provide invaluable guidance and support as FGD continues its growth trajectory both in the United States and abroad.
A VERY, VERY, VERY large potential customer base
The Company has suggested that each customer will generate over $140 of revenue per year through its mobile wallet application. If we want to look at the incredible potential of this business model for a moment, please consider the following. For basic illustrative purposes, based on a continued successful roll-out and assuming FGD can get to one million users with recurring transactions, FGD could scale to $140 million in annualized revenue with $90 million in EBITDA. With an EV/EBITDA multiple of 5-7x (which would be very reasonable for a high growth, high margin business) this would equate to a monstrous market cap for FGD in the range of $450 million to $630 million. NO, we are not forecasting this to happen immediately, if ever, but it illustrates the incredible potential of high margin recurring revenue businesses that are operating in growing segments of the market (read; disruptive FinTech). If FGD was able to achieve even a small fraction of this growth the marketplace would surely take notice and a rerate in equity value would occur. Keep in mind, FGD looks to have just recently turned the corner with respect to its supercharging of revenue (1000% growth in the year-over-year 9 month period ended September). So, suffice to say, as with any growing enterprise, there WILL BE bumps and hurdles along the road. BUT! What is really intriguing about this model is the vast network of potential customers. The key here is that the majority of the global population (7 billion and counting when we last checked) DO NOT have access to credit cards and bank facilities, but they are increasingly gaining access to mobile phones. Especially in developing countries, this reality is potential digital FinTech GOLD for FGD!
Expanding its global presence through strategic partners and clients
Strategically, FGD shares its API with all of its partners and does not sign mutually exclusive deals. This important distinction allows it to tap into extremely large user bases across the globe through its partnerships (+74 million users with 4 banks in India). The strategy also allows management to focus purely on its core competencies rather than spending time and money on marketing and customer service. In the last three months alone FGD has signed agreements that gains access to a transactional business model on up to nearly 100 million users. Even a 10% penetration rate would provide FGD with 10 times the users as assumed in the company’s presentation.
Here are some impressive stats: FGD’s network spans 97 countries, and expects to reach 112 countries by the end of 2017, it has more than 54,000 distribution and payout locations globally, and finally FGD is integrated with over 200 banks. FGD’s main objective is to be one of the top two online money remittance companies and the leading provider of ubiquitous mobile money payment solutions around the world.
Partnership agreements are already bearing fruit and are gaining significant traction. FGD’s deal with Vijaya Bank as announced on November 7 is for the VPayQwik app. Review of the download page on the Google Play store indicates 100,000-500,000 installs and 864 ratings/comments.
And with each click of the button and each completed transaction First Global receives a fee!
The bottom line with First Global Data
Although the issuance of shares and recent debt conversions has created a very large issued and outstanding share balance, the Company has cleaned up its highly leveraged balance sheet. Currently, there are 178 million shares issued and outstanding on a non diluted basis. The exercise of all warrants and options outstanding would leave the company with approximately 335 million shares outstanding but it would also contribute an additional $33 million cash in the treasury. For a profitable company with proven technology, 22 state licenses, a growing international partner list, exponential growth in customers, FGD is in a great position to move forward to enhance shareholder value. While this could include strategic acquisitions, dividends, or stock repurchase plans on the open market over the long term, over the short term we see the market waking up to this sleeping giant.
As a way to gain exposure to the burgeoning fintech sector through mobile payments, remittances and banking the “unbanked”, all in a potentially highly profitable and scalable recurring revenue model we urge you to put FGD on your radar screens right away!
The Prosperity Stock Report Team
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