Last Tuesday this payments platform group announced an acquisition that has scored a strong price reaction in its shares
Bango (LON:BGO) acquired the global payments business of the Japanese mobile operator NTT DOCOMO, which in one swipe has helped to push the enlarged grouping into a market leading position as an independent payments solution provider for the world’s largest merchants and operators.
The €4m deal for its long-standing competitor, may seem small beer, but it has catapulted Bango into the really big league.
The Group’s Executive Chairman, and one of its biggest shareholders, Ray Anderson, stated that:
"After many years competing with DOCOMO Digital, we know the business and the team well.
This Acquisition of DOCOMO Digital is a key, strategic deal for Bango and solidifies our leadership in the market. With the support of NTT DOCOMO, DOCOMO Digital developed relationships with high-quality operator and merchant customers and we are excited to bring them the benefits of the Bango Platform.
These new merchants and operators will also offer new opportunities for everyone already connected to Bango. In addition, the Acquisition brings the advantages of a partnership with NTT DOCOMO, further supporting our global growth."
The Group’s Business
Founded in 1999, employing just 130 people globally, the Cambridge-based group has developed unique purchase behaviour technology that enables millions more users to buy the products and services they want, using innovative methods of payment including carrier billing, digital wallets and subscription bundling.
It allows mobile phone and broadband users to make payments without the need to enter credit card details and lets them pay through their bills instead.
That payment data, such as the items or services purchased, to help to generate new sales.
Bango harnesses this purchase activity into valuable marketing segments, called Bango Audiences.
Merchants use these audiences to target their marketing at paying customers based on their purchase behaviour.
Better targeting increases spend through the Bango payments business, in turn generating more data insights, creating a powerful virtuous circle that drives continuous growth. Everyone connected to the Bango Platform thrives as the virtuous circle grows.
The world's largest online merchants, including Amazon, Google and Microsoft, use Bango technology to acquire more paying users.
The Group’s CEO, Paul Larbey, commented that:
"Acquiring DOCOMO Digital strengthens our position as a world leader in data-driven commerce. The decision by NTT DOCOMO to transfer its global payments business to Bango is a major endorsement of our technology in the fast-growing digital economy.
Through the Bango Platform, telcos can leverage the universal appeal of the world's biggest online brands and digital merchants can immediately reach new customers. Both will benefit from data-driven insights, giving consumers greater access to goods and digital services."
Alternative Payments Market
Alternative payment methods, including carrier billing and mobile wallets, are the fastest growing of any payment method.
Some 80% of people own a smart phone globally while just around 20% of people have a credit card.
For merchants, alternative payments open access to millions more consumers worldwide.
As a result of this Acquisition, Bango merchants will now have access to 1.9bn more users via the Bango Platform and telcos will have more goods and services to offer their customers.
The Deal
This deal accelerates Bango's growth in one of the largest alternative payments markets in the world.
It also expects that upon integration the enlarged group will realise annualised synergy savings of some $21m by the end of next year.
Its global partnerships are boosted significantly, doubling the number of Google Play and Amazon routes.
It also adds new telco partners such as Deutsche Telecom, Telefónica, and América Móvil and extends Bango relationships with Softbank, Vodafone, Airtel India and Singtel.
It consolidates the group’s position as a leading payments platform for global merchants including Netflix, BritBox and YouTube.
It also brings in new merchants including Shopify, Discovery, Tidal, Jetstar and Paramount+.
The Equity
There are now 76.28m shares in issue.
The larger holders are NHN Corporation (13.7%), Liontrust Investment Partners (12.3%), Herald Investment Management (10.4%), Hargreaves Lansdown Asset Management (9.03%), Raymond Anderson, Chmn, (8.61%), HSBC Global Asset Management (HK) (6.66%), Odey Asset Management (6.47%), Anil Malhotra, CMO, (5.22%), Cavendish Asset Management (4.66%), and Barclays Bank (Private Banking) (2.27%).
Broker’s View
Analysts Ciaran Donnelly and William Larwood, at the group’s brokers Liberum Capital, have upped their price objective for the company’s shares, from 260p to 345p after this deal.
Sorting out the various ramifications of the acquisition sees their estimates for the current year profits of just $0.7m compared to $3.4m last year, on the back of $31.1m of revenues ($20.7m), with earnings collapsing from 7.0c to just 0.9c per share.
However, for the next year to end December the analysts estimate $50.3m revenues, $8.0m pre-tax profits and earnings of 9.3c per share.
Jumping forward to 2024 they see $60.4m sales, $23.6m profits, generating a very healthy 25.3c per share in earnings.
My View
This massive jump in Bango’s market through this deal was understandably endorsed by market reaction, shoving its share price up from 157.25p to a close on Friday night of 198.5p, at which the group is capitalised at £151m.
That was a very swift uplift in price, which may well be furthered within the next few days.
However, if they should ease back on a mix of profit-taking and market makers book balancing, well they may see 175p or thereabouts as a resting point, before the company declares its first-half results in a few days, then it could well tempt medium-term investors to pick up a few shares.
They are not for chasing to stratospheric levels, yet, but the shares may soon reflect the company’s accelerating growth in its offering and global spread.
I now set a medium-term Target Price of 250p.