Digital Currencies Will Intensify Fee Compression Amid Rising Compliance Costs

Key Takeaways

• Rising digital currency adoption and payments technology advances threaten CAB Payments' business model and long-term profitability.
  
• Heavy client concentration, regulation, and strong fintech competition heighten earnings volatility and challenge revenue and margin stability.
  
• Strategic focus on technology, global expansion, and deep client relationships positions the company for sustainable revenue growth, improved margins, and increased resilience against market competition.

Catalysts

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

• Accelerating adoption of digital currencies and central bank digital currencies threatens to bypass traditional cross-border payment intermediaries like CAB Payments, undermining long-term transaction volumes and eroding core revenue streams.
  
• Intensifying regulatory scrutiny, especially regarding anti-money laundering in emerging markets where CAB operates, is set to drive up compliance costs and operational complexity, reducing group net margins over time as cost discipline becomes harder to maintain.
  
• Overreliance on a concentrated client base and limited geographic diversification exposes CAB Payments to elevated earnings volatility; the loss or inactivity of key clients, or macroeconomic downturns in core African and LatAm markets, could result in sharp revenue declines that are structurally difficult to offset.
  
• Accelerating advances in payments technology and the increasing commoditization of cross-border flows are likely to drive industry-wide fee compression, putting sustained pressure on CAB's take rates and long-term profitability even as they grow transaction volumes.
  
• The entrance and expansion of global fintechs and large banks with superior distribution, enhanced FX offerings, and broad compliance capabilities will make client retention more challenging for CAB Payments, leading to both slower income growth and rising client acquisition costs.

CAB Payments Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on CAB Payments Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming CAB Payments Holdings's revenue will grow by 15.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 7.1% today to 19.6% in 3 years time.
• The bearish analysts expect earnings to reach £26.5 million (and earnings per share of £0.1) by about August 2028, up from £6.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 5.4x on those 2028 earnings, down from 21.8x today. This future PE is lower than the current PE for the GB Diversified Financial industry at 19.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.

CAB Payments Holdings Future Earnings Per Share Growth

Risks

• The company is benefitting from accelerating cross-border trade, particularly regarding flows into and from emerging markets, which creates a structural long-term demand for efficient payment infrastructure-supporting the potential for steady growth in revenues.
  
• A clear focus on deepening client relationships and providing integrated, solution-led services (spanning FX, payments, trade finance, and deposits) is driving sustainable, annuity-like income streams and reducing revenue concentration, which can support higher and more predictable earnings over time.
  
• Ongoing, disciplined investment in proprietary technology, including AI-driven operational efficiencies, is leading to significant improvements in scalability and operational leverage, which could result in expanding net margins as the business grows.
  
• Expanding global reach through new offices in Europe, the US, and soon Abu Dhabi, together with a unique specialism in harder-to-serve currency corridors, is increasing the addressable customer base and positioning the company for long-term market share gains, supporting both top-line revenue growth and earnings.
  
• Strong and growing relationships with central banks, and the company's ability to successfully partner with global payment leaders like Visa, are opening up new business opportunities and increasing barriers to entry, making it more resilient to competitive pressures and supportive of stable or growing profitability.

Valuation

• The assumed bearish price target for CAB Payments Holdings is £0.45, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of CAB Payments Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of £1.0, and the most bearish reporting a price target of just £0.45.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be £135.4 million, earnings will come to £26.5 million, and it would be trading on a PE ratio of 5.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of £0.54, the bearish analyst price target of £0.45 is 19.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.