Mi-Pay Group PLC (LON:MPAY) has released an encouraging update this morning, confirming trading for 2017E was broadly in line with expectations. The company has also announced a number of board changes and a successful £510k placing which will raise £260k of new cash before expenses, to be invested in the company’s fraud platform and used for working capital purposes. The company continues to make good progress operationally, following the board changes and placing, the balance sheet is robust and operating model is now leaner. We remain confident that the company will achieve profitability at the EBITDA level in 2018E.
* Trading update: The company has confirmed that profits for 2017E are in line with expectations. The company processed a total of £95m in payment transactions (2016: £83m) increasing transaction services revenue to approximately £2.7m (2016: £2.6m) with total revenue of £3.1m (2016: £3.3m). Gross profit of £2.0m (2016: £2.1m) was achieved as margins declined c.77bps as a result of the restructuring of key client contracts. The cash position at year end was £2.9m. The company additionally achieved good operational milestones in 2017, delivering a new direct fraud management service in Europe and new payment services in the Asia Pacific Region which we expect will help to drive incremental revenues in 2018.
* Placing: Mi-Pay Group has successfully placed 4,141,048 new ordinary shares at a placing price of 12.5p, raising c.£500k. The placing will deliver £260k of new cash to the company, made up of a strategic investment from Huub Sparnaay, and cash raised from existing directors and shareholders. The remainder of the placing is made up of the reinvestment of unpaid deferred directors salaries. As a result, the placing has both delivered £260k of new cash to the company and removed c.£375k of liabilities from the balance sheet, improving the financial stability of the company significantly.
* Board changes: A number of board changes have also been announced this morning. These include; the current Chairman, Seamus Keating, moving to NED, the current CEO Michael Dickerson, moving to Exec Chairman and current CFO John Beale taking up the role of CEO and acting CFO while the company find a replacement. These board changes will deliver a £0.2m annual reduction in operating costs.
* Zeus Capital Forecasts: Volumes from key contracts are taking longer to build than anticipated, with revenue lower through the forecast period as a result. Gross profit dynamics are improved to renegotiations with the existing customer base delivering uplifts in gross profit margins, EBITDA forecasts in 2018E and 2019E are unchanged as a result. New cash coming in from the share placing and the removal of the deferred salaries liability from the balance sheet leaves the business better capitalised with a more robust balance sheet. We remain confident the company will achieve profitability in 2018E as volumes from new contracts build through H2.
