BOKU LN @ 105 GBp
BOKU operates a global payment platform that connects the world’s largest digital only merchants with local payment methods (LPM’s) across >70 countries enabling them to receive payments and thus acquire customers not using legacy card-based (VISA/Mastercard) transaction methods. Globally, the majority of cross-border e-commerce will soon be transacted using LPMs and not card-based methods, a trend that has been driven by emerging markets. Despite BOKU’s significantly smaller size than global payment peers, BOKU has carved out a unique and attractive position serving the LPM needs of global tier 1 clients, primarily in Asia. At c. 100 GBp a share, the company is valued at 8.4x FY25 EV/EBITDA (9% FCF Yield, ~75% FCF to EBITDA conversion), crazy cheap for a high-quality growth name… Why?
Except being listed on AIM, being under-followed, having major shareholders with outflows and being in the payment sector that has de-rated sharply with some valuations falling by as much as 50% - BOKU downgraded their FY26 guidance for the first time ever (I think) in their 1H26 trading update. Instead of >20% growth, we should end up around 10%. The downgrade is solely due to delays in new connections for their main customer META in Egypt, Poland and Bangladesh estimated to be worth c. 10ppts of revenue growth – delayed to next year.. On this delay sellside cut their estimates completely and the new guidance should prove to be ultra conservative. I think we’re therefore in for a new cycle of beats and upgrades from 2027, funny valuation ends up being ATL at the same time.
I owned stock before the 1H26 trading update on the thesis:
- Durable 20% growth, high quality revenue
- Margins that would scale from c 30% to c 50%
- It was rather cheap at 160 GBp – c 5% FCF yield given the growth outlook
Since it seems like the trading update only delayed my thesis I now own c 2x the number of shares vs before the trading update, once again buying the dip…
This was my initially thesis.
Following two years of heavy investment where BOKU have increased employees by >40% (largest OPEX base at c. 51% of revenue) the company is now ready to scale margins. Management guides >20% topline growth with margin expansion from 2025. Sellside, jaded after being positive on a stock that’s flat for 5 years naturally take a conservative stance with cons. at c.20% topline and c. 150 bps margin accretion p.a. coming years.
I think there’s a large chance BOKU will beat 20% p.a. topline growth and that margins will scale much faster than expected by consensus.
On revenue, c. 2/3 of BOKU’s revenue comes from its fourth largest customers (likely Netflix, Spotify, Microsoft and Meta) while the remaining 1/3 is largely split between c. 6 other large customers (e.g Amazon, Google, Sony etc). BOKU’s revenue is tied to these customers performance – for example Spotify subscriptions in the Philippines where BOKU earns a 20-100 bps take rate on all monthly Spotify subscriptions paid using the country’s dominant LPM (gCash) – making BOKU’s revenue as sticky as its customers.
The revenue growth from existing merchants without any up-sell from BOKU (e.g existing merchant adds a new market/payment connection) should conservatively drive c. 10 - 15% revenue growth p.a. for BOKU. On top of that comes the up-sell potential which remains vast - BOKU is estimated to process <5% of potential existing merchant volumes – increased penetration adds another 10 – 15% revenue growth p.a. bringing BOKU’s total revenue growth to >20% p.a. If BOKU shared classic SaaS metrics – Net Revenue Retention (NRR) would likely exceed 120%.
Additional revenue upside comes from net new merchant additions, which as illustrated above isn’t necessary for the investment case. While I expect customer additions over time, what’s worth highlighting that helps with net customer additions is not to lose your existing customers – BOKU has never lost a customer, 0% churn if we continue with the SaaS theme… All in all, 20% revenue growth is the base line – far from the ceiling.
On margins, two things matter. First, the business model is demonstrably scalable, between 2018 and 2020, $16m of incremental revenue generated $13m of incremental EBITDA, taking margins from 18% to 38%. For a business growing topline at >20% p.a. with >90% gross margins, the margin trajectory is entirely a function of management intent. Second, that intent is there – in Sep24 management themselves put forward and got approved an c. $110 equity incentive program that vests in March 2028 only if the share price is 3.4 - 5.7x today’s levels. Management are betting their compensation on some serious margin inflection.