Partnership With Visa And AI Adoption Will Expand Global Services

Key Takeaways

• CAB Payments' expansion into new markets and collaboration with Visa could drive revenue growth through increased transaction volumes and diversified offerings.
  
• Technological advancements and strategic use of their banking license may enhance efficiency, reduce costs, and boost earnings by increasing net interest income and transaction volumes.
  
• Dependency on key currency corridors and regulatory changes, combined with rising costs, pose risks to CAB Payments' financial stability and strategic expansion.

Catalysts

Through its subsidiaries, provides foreign exchange (FX) and cross-border payments services to banks, fintech companies, development organizations, and governments in the United Kingdom and internationally.

• CAB Payments is expanding its market presence by entering new geographical areas like the U.S., and broadening their European operations, which is expected to increase revenue through market penetration and diversification.
  
• The company's collaboration with Visa allows for expanded payment capabilities and B2B2C services, potentially driving increased transaction volumes and revenue growth.
  
• Enhancing their sales force, particularly with new hires and a decentralized sales model, could improve client acquisition and revenue per client, boosting overall sales revenue.
  
• CAB Payments plans to leverage their banking license more effectively, increasing trade finance and liquidity facilities, which can boost net interest income and transaction volumes, enhancing earnings.
  
• Implementing technological advancements such as AI-driven processes and robotic automation, as well as expanding product offerings like FX derivatives, could increase operational efficiency, reducing costs, and potentially increasing net margins.

CAB Payments Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CAB Payments Holdings's revenue will grow by 14.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 21.9% today to 16.8% in 3 years time.
• Analysts expect earnings to reach £22.3 million (and earnings per share of £0.09) by about February 2028, up from £19.4 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 12.3x on those 2028 earnings, up from 8.3x today. This future PE is lower than the current PE for the GB Diversified Financial industry at 13.2x.
• Analysts expect the number of shares outstanding to decline by 0.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.19%, as per the Simply Wall St company report.

CAB Payments Holdings Future Earnings Per Share Growth

Risks

• CAB Payments experienced a 22% decline in gross income primarily due to central bank interventions affecting its key currency corridors, which may indicate future vulnerabilities in revenue if such uncertainties persist.
  
• The company's adjusted EBITDA fell by 53% amid decreased revenue and higher costs, especially due to increased hiring, posing risks to net margins if cost-containment measures are not effectively implemented.
  
• There is a significant dependency risk as high revenue concentration from a few currency corridors has declined but remains noteworthy; further disruptions could impact overall earnings and financial stability.
  
• The company's ambitious growth strategies involve expanding into new geographies and increasing sales force, necessitating substantial investment, which could strain financial resources if expected revenue growth doesn't materialize.
  
• Changes in regulatory environments, particularly concerning its reliance on new banking licenses in the U.S. and EU, introduce potential delays or obstacles that could impact strategic expansion plans and anticipated future earnings.

Valuation

• The analysts have a consensus price target of £0.875 for CAB Payments Holdings 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 £1.05, and the most bearish reporting a price target of just £0.6.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £132.7 million, earnings will come to £22.3 million, and it would be trading on a PE ratio of 12.3x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of £0.63, the analyst price target of £0.88 is 27.9% higher.
  
• 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.