Pinned straw:
Well written @twee.
"I find myself questioning why this opportunity exists and whether I might be missing something". This is one of the most important questions we have to ask as investors, but I've also come to learn that in microcaps that have been beaten down for an extended period of time to never underestimate the time a share price will churn even as the underlying fundamentals turnaround.
I agree there is plenty of operating leverage to come through for CCA. As you point out, the PaaS segment is still sub-scale, generating 27% GM's in FY25, but there was a significant split between the halves there with 1H coming in at 19% while the 2H improved substantially to 32%. Management called out a few factors for this, but primarily they were still scaling revenue over the fixed cost base (largely Mastercard network fees) and compliance/certification for Apple/Google Pay roll-outs.
I expect margins to trend towards management's 50% target pretty quickly. The fintech customers being onboarded will be higher margin than the current credit union debit card customers, plus their pre-paid programs come with a float that CCA can generate 100% margin interest income on. It was only $2.8m at the end of FY25 but it should grow nicely over time and be another tidy income stream.
I've also become more bullish on the activity of these fintech customers. Extraordinary was CCA's first fintech customer, and their product was originally corporate pre-paid cards used for employee gifting and wellness. An interesting product, but one that might only be tapped a handful of times a year by end users. However they recently obtained approval from NZ Inland Revenue for their cards to be FBT exempt for public transport to work which has rapidly expanded their customer base but also means the cards can turn into a daily tap.
Sharesies is another good win, but despite the large customer base I was unsure what the take up would look like for their card program. But they have come out recently and said spending on their cards will generate a 1% cashback that will go back into their customers investment accounts. Still hard to know exactly what the take up will be, but with that benefit I think we see a good chunk of users turn it into their daily use debit card.
Looking forward to the next CCA update in January, the 1Q was stronger than I expected (mostly driven by the one-off licence sales as you noted) and given the 2Q seasonality I'm hoping for another good result.