MSL Article
MSL Solutions (MSL: ASX) 16.12.20

By Thomas Galanti.

MSL Payment Solutions (MSL: ASX) provides SaaS technology platforms to the sports, leisure and hospitality sectors. Its Point of Sales (POS) platforms is purpose built for venues, offering payment facilities, real time data & analytics feedback and customer engagement tools. In a post-Covid reality, MSL’s technology should be well placed for venues seeking contactless service, a point of focus for venues looking to re-establish in this new environment. In-seat ordering POS systems have already been rolled out, with MSL’s mobile technology being used even prior to Covid for QCC members at the Gabba.

MSL is a turnaround story whose vital signs have been restored since Pat Howard joined as CEO in September 2020. Negative EBITDA for FY19 of -$5.6m with a softening top line to boot wasn’t going to be tolerated for long by investors. Under Howard’s leadership, MSL appears to have shifted from a mindset where positive cashflow doesn’t matter to one where it’s extremely important. His reduction of headcount by 18% in FY20 saving $3.3m and his public comment that further efficiency gains are still available (5-10% range) speaks of a CEO that doesn’t want to be constantly going back to the market to raise dilutive capital.

Covid-19 headwinds were felt in the second half of FY20 given MSL’s exposure to the sports, events and hospitality industries. Total revenues were down $2.7m over the year to $25.1m, with recurring revenues rising only slightly. After a strong first quarter performance, income fell sharply as venues closed globally, recording a significant decline in receipts from customers, particularly in Q4FY20, where receipts fell $1.5m QoQ. Most of the difference can be found in areas of the business that will likely return in a Covid-normal environment, such as revenues from installation of physical units and other hardware fees. It is expected that as venues reopen and consider additional contactless systems, non-recurring revenues could be a strong driver in both FY21 and FY22.

Despite the Covid affected operating conditions, MSL posted a positive EBITDA of $0.25m in the second half of FY20 but the stronger evidence that Howard’s turnaround story was working emerged in the Q1 FY21 4C that showed MSL’s first positive cashflow quarter of over $1m. Importantly, even without government grants, the quarter was still a positive cashflow quarter. The 4C also showed receipts from customers had recovered strongly from the Covid-hit Q4FY20 results showing that it wasn’t purely a “costs out” phenomenon driving MSL’s improved outlook.

While the most recent 4C showed what sort of ‘defence’ could be played by the management as they found improved efficiencies and small contract wins to stabilise the company’s financial health. They’re now displaying their ‘offensive’ prowess with an acquisition of a business they already know well. MSL recently acquired SwiftPOS in a move to rapidly grow their customer base and increase MSL’s breadth through their extensive reseller network. Having been SwiftPOS’ largest reseller in Australia – commencing in 2010 – their already established relationship and understanding of the technology makes this a strong strategic fit, as was represented in shareholders’ sentiment on the announcement. SwiftPOS currently achieves a steady annual net profit after tax of ~ $1m. MSL expects synergies after integration to the group of approximately $0.25m to $0.5m, expanding SwiftPOS’ contribution to NPAT to $1.25-1.5m. The acquisition will add ~ $2.3m – approximately 12% – to annual recurring revenue and given the move is earnings accretive, will add $1.5m to the group’s EBITDA. The company expects this acquisition to be a key driver of future income, notably coming from the additional 4,000 venues attained through the deal, giving MSL a total of over 5,000 venues globally.

This should serve as a catalyst that garners improved efficiencies in the supply of their POS systems, as well as the potential to up-sell their software to the additional venues. The Australian government recently granted MSL a term loan facility of $2.5m, which will support the SwiftPOS acquisition. The additional funding from Export Finance Australia should allow the company to seek further agreements in UK and European markets, with Howard saying they have already identified opportunities.

Going forward, MSL is well positioned to take advantage of the growing need for modern POS systems. The push towards the complete digitalisation of restaurants and bars through mobile order and payment systems, and the general need to adapt to the more hygienic contactless methods of payment, means the SaaS platforms offered by MSL should be considered in venues looking to operate in a post-Covid environment. Tapping into this market should be Management’s focus in the FY21 and FY22, which if executed should see strong growth in recurring revenues through additional multi-year venue agreements.

Disclaimer: This article should not be construed as investment advice and is for information purposes only. It does not take into account your investment objectives, particular needs or financial situation. Before making an investment in anything, do your own research and contact your investment advisor. Entities associated with Chris Judd Invest hold shares in BCN.


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