Few notes from the Quarterly report before I started work this morning.

Commentary

One stop shop for all things payment, invoicing & lending. Streamline process for B2B & B2C transactions. Clip the ticket along the way. Use AI & data to improve lending facilities.

$3m cash burn for the quarter & only $13m cash on hand. 4 quarters of cash left.

Even if they continue to grow at 40%+ QoQ it’s hard to imagine a world where they don’t have to raise capital this calendar year. Even if they continue growing at 50% QoQ that puts Q4 Rev near 1.4M or FY22 Rev of $3.3m at a current $120M market cap. Downside risk in the current market conditions seems more than likely.

The Launch of their debt warehouse could see a significant hockey stick like growth. I’ll continue to hold but may look to lighten my position if we see a run up in news of debt warehouse & if the cash burn position has not changed.

Overview

Cirralto will be changing their name to Spenda after their “flagship” product.

The Spenda Platform is an integrated application which services payments and non-bank lending.

-         B2B payment Services

-         Digital trading software & integrated solutions

-         Manages transaction flow from quote to pay and on demand lending

-         Connecting businesses up and down the supply chain targeting “marketplaces”

Quarterly Report

Cash Receipts - 160% YoY - Q2 FY22 $614,637

FY21 Cash Receipts $1.02M - HY FY22 $1.01M

Cash on hand $13M

2022 Outlook

Q1 - Maxmimise use of Spenda AR & AP products – Loan book yiled of 18.8% + Payment yield 8.5% = 26.8%

Q2 – Launch debt warehouse to expand lending & payment volumes

Release Spenda eCommerce to Aus & International markets with integrated payments

Q3 – Expand debt warehouse & payment services

Establish a service integrator channel

Q4 – Focus on marketplace customer acquisition, product internationalisation

Offer AP/AR solution in UK/US markets

International lending

December 2021 – Cirralto funded it’s first global buy now pay later transaction between Aus & China. Evidence based approval matrix, delivers supply chain certainty between Chinese buyers and Australian producers. At the end of the Q James Tyler had drown down $124k from their initial approved $2M facility

App developments

Pay by Link launched for contactless payment added to the Spenda platform without the need for a credit card. Cirralto make between 0.7% and 1% from the total transaction volume for credit card payments and a variable rate for bank transfers.

Pay Statement By Link scheduled for release in Q2/Q3 2022

Launch of payment portal & payment widget with flexible payment options. Both a B2C & B2B tool.

“Being predominantly a B2C tool for collecting payments from retail customers, Pay By Link indroduces mainstream consumers to the Spenda Suite and paves the way for the release of Spenda’s wallet functionality” Trying to get into the “Cash App” space?

Cirralto (CRO) are my highest conviction small cap currently trading on the ASX. It is very early stage but I see them as solving a huge problem in the business to business payment space not just in Australia but globally. 2022 will be pivotal in proving whether my conviction is correctly placed or I’ve been sold a bag by a well spoken CEO.

Adrian Floate (CEO) has done a few presentations lately after their recent quarterly update so just wanted to summarise a few of these here.

Cirralto have just launched their business to business BNPL service (don’t stop reading because I said BNPL please ???? this isn’t a consumer facing Z1P or SZL). B2B BNPL provides payment certainty to the supplier and in my opinion provides huge value to the customer. No longer waiting 30 days for payment or even worse, overdue invoices. I work for a small company who turns over around $150m in revenue each year and cash flow is always front of mind. Late invoices often have flow on effects potentially delaying purchases of inventory or plant/equipment which translates to delayed projects etc.

Adrian outlined how much he take from each transaction flow (ticket clipping)

Payment Service (eInvoicing/PoS) – 0.7% on transaction value

BNPL Service – 2% on transaction value

Meaning a client could be worth 2.7% depending on the services utilised.

Cirralto are targeting marketplaces (buyers and sellers), I think this is incredibly smart as they can potentially capture both the suppliers to the marketplace as well as the sellers of the marketplace (demand & supply aggregation).

In the past quarter they have committed funds on the balance sheet to their debt warehouse facility along with the launch of their BNPL service. None of the revenue from their BNPL service has been recognised in their most recent quarter as it was within 30 days from the end of the quarter.

In the upcoming quarter we can expect revenue from cross border B2B BNPL which I think could provide a huge opportunity. Adrian has said in a number of interviews that he would be disappointed with a 40% QoQ revenue growth.

Cirralto’s current market cap is $150m which if you annualise their current quarter revenue of $396,000 puts it’s on a price/rev of 100x (PME anyone?). Given their CEO has said he would be disappointed with 40% QoQ growth it doesn’t take much extrapolation to get to a reasonable valuation in FY23.

Cirralto doesn’t seem to get a lot of love on Strawman, maybe it’s a little too early to really dig into the company and extrapolate the future profitability but I think they are solving a huge problem in the business to business payment space.

I see Ciralto as having sticky customers who become embedded into their eInvoicing platform & cash flow certainty. By targeting marketplaces there are potential network affects as more suppliers join sellers follow suit.

2021 has been transformative for the company with a number of deals, acquisitions and product launches. The company has gone from crawling to walking and I believe in coming years Ciralto will begin to run.

Disc Held.