This morning Novatti provided an update to the market. Is this the first sign of the potential? Increasing revenue, better margins, clearer explanations (rather than fluff) and a simplified focus!!! The report reads significantly better than previous including a feel that it’s focused on developing a profitable business. Back on my watch list. CEO Mark Healy seems to have been the right choice to lead the next phase of Novatti’s growth.

https://novatti.com/wp-content/uploads/2023/07/Novatti-Q4-FY23-Report-Business-to-be-simplified-as-focus-on-gross-margins-gains-traction.pdf

Peter Cook today announced he was stepping aside. The full announcement below…

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02675748-3A619916?access_token=83ff96335c2d45a094df02a206a39ff4

THESIS BROKEN: When it boils down to it NOV has had its hands in too many pies all of which presently take such small clips the margins are to small to be profitable without significant volumes.

So what I thought was actually the building out of an ecosystem appears now appears to be the add on of different business ventures looking to find an area that actually could generate significant revenue and then profits.

It also looked great that they were also funding so many starts ups, but, again in hindsight it looks like they were throwing a dart at a dart board with the hope of striking something big.

WARNING MISSED: CEO continually talking things up and not delivering on time. There was always an excuse on offer or the use of distraction via highlighting new developments to shift focus from cost and profit issues. I think there was also a flag on Strawman when the CEO was interviewed and he said something related to future market cap or price which, I believe Andrew noted at that time and had me wondering where his focus was (My recollection is not exactly clear).

SUMMARY: 1. Beware of those who talk too much and say nothing. The payments area is low volume so you better make sure you are consistently seeing significant growth each quarter.

Holdings: held but will be out today.

Novatti (NOV) released their quarterly report this morning. Quite a bit to unpack as they have so many things going on. For those interested the link is below.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02625752-3A611682?access_token=83ff96335c2d45a094df02a206a39ff4

key issues for me:

• revenue was down (they explain the reason) but something to watch especially due to small margins in a lot of transaction and processing areas.
• cost reduction continues (still cash flow negative). Soon to be $3m in banking costs shifts from balance sheet across to IBA bank further assisting cost reduction.
• Cash in bank 25.7m verse MC ~70m.
• 91% ownership of the IBA bank after a further $5m investment.

Disclosure: Held (Will continue to hold and allow this to play out further. If they can become cash flow positive and return to revenue growth I see considerable upside from its present price)

Below is a recent analyst report on Novatti. It’s quite comprehensive and worth a read for those interested.

https://novatti.com/wp-content/uploads/2022/12/MST-Access-NOV-Update-8Dec22.pdf

Disclaimer: This report has been commissioned by by Novatti Group Limited and prepared and issued by Glen Wellham of MST Access in consideration of a fee payable by Novatti Group Limited. MST Access receives fees from the company referred to in this document, for research services and other financial services or advice we may provide to that company.

IBoA - International Bank of Australia

I think the banks name is perfect for capturing the, as they say neglected “migrant market”. Once they receive their European banking licence they will be able to pick up migrants from Europe before they even step on Australian shores just as China Pay will hopefully do with the Chinese students. One example they can begin using is directing their Vasco Pay users in Spain who are after banking solutions in Australia to automatically start a Novatti bank account.

They seem to have a well thought out plan developing, adding and building out systems and capabilities that they can leverage off to maximise the banks success.

The RADI is a start now it’s time to work towards the ADI where they can really maximise what they have put in place.

note: I hold IRL and SM.

It seems APRA has approved their restricted licence. Note: IBoA is the name of the Novatti Bank.

https://www.apra.gov.au/news-and-publications/apra-grants-new-restricted-authorised-deposit-taking-institution-to

Novatti Sept Quarter Results:

It seems slow and steady for NOV with more time required to see if they can really exploit their relationships. Still waiting on that RDI Bank Licence as they work towards achieving a cash flow positive status (Mar -4.35; Jun-2.28; Sept -2.04).

The company reported these highlights.

 $10.5m quarterly sales revenue – up 98% YoY

 Quarterly processing revenue up 123% YoY

 Remain confident of progress on restricted banking licence

 Shift to monetisation phase continuing

 New services continue to move into commercialisation phase

 Acquiring, Issuing and Cross Border customer bases and revenues increasing strongly

 Quarterly cash requirement decreases another 10%

 $14.5m cash available with further $12.8m expected shortly.

Full report can be found in the link below.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02590927-3A606009?access_token=83ff96335c2d45a094df02a206a39ff4

A solid announcement by Novatti. As Mr Cook said last quarter that expenses peaked and moving forward they were aiming to reduce costs. Todays results support this effort showing a 48% cash burn reduction. That aside lots of good stuff…

• $32.5m in annual sales revenue – increasing 97% on FY21 
• 76% average annual revenue growth across past five years 
• $11m in quarterly sales revenue – highest ever and up 121% YoY 
• 48% decrease in cash use in June quarter on previous quarter
• $8m+ new cash expected from RKN Special Dividend in near term to add to $6.1m end of quarter balance

Aside from the financials there is lots to like about all the things they are building out.

Full announcement here…

https://novatti.com/wp-content/uploads/2022/07/FY22-revenue-exceeds-32m-as-Q4-cash-use-falls-48.pdf

disc: held

ASX Announcement:

? 53% year-on-year growth in quarterly sales revenue to $5.8m – new record

? 122% year-on-year growth in quarterly processing revenue to $4.9m – 11 straight record quarters

? $12.94m - cash balance at the end of the quarter

? Acquisition of leading SE Asian fintech ATX now complete and further acquisitions being assessed

? Visa and Mastercard acquiring licences announced as acquiring business seeing strong growth

? $10.5m in funding commitments for new banking business – working with regulator for final approvals

? Appointment of new non-executive director Abigail Cheadle bringing strong international experience

Novatti-Ripple partnership expands into Thailand

https://novatti.com/wp-content/uploads/2021/09/Novatti-Ripple-partnership-expands-into-Thailand.pdf

NOV to be added to the S&P/ASX All Tech Index from Sept 20. 

Novatti released its annual report yesterday. No real surprises as much of the information had been drip fed over the last few months. 

Moving forward the price ~0.50c remains in limbo as investors await the provision of a RADI banking licence from APRA. 

On the expenses side it edged up a little ~8% as the company grows (head count doubled in 2020-21) but, at some stage revenue will need to start ramping up to offset this present spend of ~11m. 

They really do have a lot of revenue streams now in place (with more to come) so if we can begin to start to see this flow through then revenue of 16m+ will double quickly. 

Summary: Investors will need to still remain patient as they continue to build out all their revenue generating streams. A possible re-rating may occur once the RADI is announced. This due towards the end of 2021. 

A nice write up and summary that explains Novatti (hopefully its ok to post the link) from Aug 11th. The exposure of  Novatti continues to grow...

https://smallcaps.com.au/beyond-afterpay-what-are-next-asx-fintech-dazzlers/

NOV's Principal Activity is the provision of payment services by way of financial transaction processing, subscriber billing, card issuing, merchant acquiring services and payment network integration.