Digital Transformation Will Increase Customer Retention And Reduce Costs

Key Takeaways

• New regulations against fintech predatory pricing are expected to boost Al Ansari's market share and revenue.
  
• Digital transformation and strategic acquisitions, like the BFC deal, are set to improve customer retention and enhance financial performance.
  
• Heightened competition, taxes, geopolitical tensions, expansion costs, and compliance expenses threaten Al Ansari's revenue, profits, and margins in a challenging market environment.

Catalysts

Provides a range of integrated financial services in the United Arab Emirates and internationally.

• Al Ansari Financial Services is addressing predatory pricing from fintech competitors with regulatory authorities, expecting new regulations to curb these practices early next year, which could enhance market share and increase revenue.
  
• The company's digital transformation initiatives, including the digital wallet and expanded digital services, are likely to increase customer stickiness and reduce costs, potentially boosting net margins and earnings.
  
• Strategic acquisitions such as the BFC deal are expected to close by Q1 2025, with anticipated synergies and integration benefits enhancing revenue and EBITDA in subsequent quarters.
  
• A gradual increase in remittance fees implemented since April 2024 is expected to positively impact the revenue line without harming market share significantly.
  
• Expansion plans targeting 300 branches by the midterm, along with growth in ancillary services like CashTrans and WorldWide Cash Express, are projected to contribute to mid-teen growth in operating income, supporting overall earnings growth.

Al Ansari Financial Services PJSC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Al Ansari Financial Services PJSC's revenue will grow by 43.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 66.2% today to 38.7% in 3 years time.
• Analysts expect earnings to reach AED 714.4 million (and earnings per share of AED 0.09) by about February 2028, up from AED 415.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.5x on those 2028 earnings, down from 17.8x today. This future PE is lower than the current PE for the AE Diversified Financial industry at 23.8x.
• Analysts expect the number of shares outstanding to decline by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.5%, as per the Simply Wall St company report.

Al Ansari Financial Services PJSC Future Earnings Per Share Growth

Risks

• Increased competition from fintech companies offering free or subsidized services poses a risk to Al Ansari's revenue and market share, as they may attract price-sensitive customers away from traditional exchange services.
  
• The introduction of corporate tax has decreased net profit after tax by 17%, impacting earnings, and implies future financial pressures as Al Ansari adjusts to this ongoing expense.
  
• Ongoing geopolitical tensions and parallel markets have historically affected operating income from remittances, posing a continued threat to revenue if these issues persist or resurface.
  
• Expansion costs and increased manpower needs resulted in an 11% decrease in EBITDA, which may continue to pressure margins if not managed effectively.
  
• Rising amortization costs and necessary compliance expenses can impact net margins as Al Ansari integrates more of its workforce and adapts to regulatory requirements.

Valuation

• The analysts have a consensus price target of AED0.99 for Al Ansari Financial Services PJSC based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of AED1.09, and the most bearish reporting a price target of just AED0.89.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be AED1.8 billion, earnings will come to AED714.4 million, and it would be trading on a PE ratio of 17.5x, assuming you use a discount rate of 19.5%.
  
• Given the current share price of AED0.99, the analyst price target of AED0.99 is 0.0% different. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.