CCA has long promised growth and profitability. Well, that promise is finally coming true, yet the market hasn't noticed.
Transactional revenue for the payments platform went from 1.3m in FY24 to 6.3m (USD) in FY25. This is platform revenue and was driven by an increase in active cards in New Zealand. They clip the ticket on these card transactions with a flat fee per transaction as well as the interchange fee. By cards, that's physical and digital cards (higher fee).
My thesis is that over the long term this platform transactional revenue will continue to grow and margins will improve.
The business is not yet high-margin - gross margins are around 27% - and card issuing is a competitive, mature market. However, if CCA retains clients on its platform and scales, margins could rise significantly (the company targets 50% gross margin).
Development for their core products is largely complete, meaning ongoing development costs should remain relatively stable. Revenue quality is solid: 76% of FY25 revenue came from recurring platform-as-a-service (Vertexon) and support/maintenance services. The remainder came from Paysim, a payment testing product.
One negative is the poor working capital setup. In September 2024, on-boarding several new customers required a ~$1 m capital raise to bridge the 6-8 week gap between payments and receipts. They now have a higher revenue base, and more reoccurring revenue, so this timing effect should be reduced in future.
Another negative is their small size, the revenue lumpiness and that any customer loss will be felt. Perhaps they will continue to remain sub-scale and never fulfill the promise.
As written up well by @Wini in July 2024 there's the potential for operating leverage. While FY25 NPAT was still negative, they had positive operating cashflow and positive EBITDA for the first time. The operating leverage is starting to show through.
In late 2024, the company decided to exit the U.S. market and focus on Australia. Management is now concentrating on two core products, enhancing them using the existing development infrastructure rather than launching new products. This is a sensible, mature decision, though the market may penalize the company for lacking long-term growth ambitions. I like a tightly run, simpler business focusing on a much easier (even if smaller) market.
Recently Q1 FY26 results showed quarterly growth of 22% in active cards on the platform and record quarterly revenue of A$7.1m (partly from one-off hit of new license sales). The FY26 guidance of A$25.4-27.7m, Underlying EBITDA A$3.8-5.4m and cash flow positivity is eminently achievable considering these Q1 results, contract liabilities already on balance sheet and cost out from the US pivot. This is without significant scale and shows the quality of the business.
Management has been very transparent and detailed in their recent communications, so much so that I find myself questioning why this opportunity exists and whether I might be missing something.
With a market cap of ~50m (similar to July 2024) the market has not rewarded the sensible strategic decision making of management and it's execution. I think it is decent value, taking the upper end of FY26 guidance, I've got it on less than 2x revenue and EV/EBITDA of 9x.
The other aspect of why this opportunity exists may be the long road it has been for investors with Change Financial. The market cap has not grown much over the years, it hasn't delivered on the promise. Well, I think there's some evidence that has changed and I'm a recent owner