In an update for six months to 30 June 2021, Equals Group (EQLS) reported a 21% revenue rise on 1H20 and said it remains “highly confident” about revenue prospects going into 2H21.
The technology-led international payments company which is focused on the SME marketplace said revenues for 1H21 came in at £16.7 million, a 21% increase over £13.8 million in 1H20. In addition, revenues in 1H21 also increased 11% relative to 2H20.
It said a strategic push to direct sales towards ‘more sophisticated B2B customers’ is starting to bear fruit with a rise in dealing in forward contracts, which typically yield a higher margin.
Equals recalled how 2Q21 was ‘a record quarter’ for the business, with growth primarily driven by record levels of transactions within its International Payment division, record activity on the Spend platform as well as buoyant revenues from banking-style products.
Over the period, the number of forward transactions rose by over 200% and the average order size rose from £0.09m to £0.114m. Meanwhile, revenues from forward contracts now represent 45% of the total International Payments’ revenue stream, the company stated.
The Group said it saw strong demand for its ‘own-name multi-currency IBAN’ capability combined with its settlement and clearance capabilities and user-friendly platforms – Equals Solutions. It said this resulted in £0.3 million of revenues in 2Q21 as clients came on stream in June 2021. Going forward, the company noted that its pipeline for 2H21 ‘looks strong.’
The success of the company’s previous CasCo acquisition in November 2019, and its performance since, led to a slightly higher earn-out payment than previously anticipated in Q1-2021 (£0.8m), but with ‘no material effect to the Group's cash flows or cash position.’
Meanwhile, the Group’s ex-CasCo white-label business – Equals Connect - continued to see growth, gaining a further 32 white label customers during 1H21, taking its customers to 58.
Deposits from B2B customers, an indication of revenues to be earned when the funds are spent, also grew strongly, up 60% year-on-year in H1-2021 at £337 million, Equals reported.
In addition, Equals’ Spend platform achieved ‘record levels’ of loads accelerating towards the end of 2Q21 with June 2021 being ‘an all-time high.’ It said this growth is set to accelerate further if travel restrictions are relaxed, widening the use case for the Group’s customers.
The Group noted that travel-related activity made up less than 5% of revenue in 2Q21 compared to 31% in 3Q19. As a result, the Company said there remains ‘an essentially ‘free-option’ on travel money revenues returning as Covid restrictions are relaxed, representing a considerable performance upside for both revenues and profits.’
Equals Group became operationally cash break-even in 4Q20 and has remained so since, it stated. As at 30 June 2021 it had £9.2m of cash at bank. Due to increased trading activity, additional collateral may have to be posted and therefore around £1.2m is currently used for card pre-funding, regulatory deposits and funding margins with liquidity providers, it noted.
The Group told investors that it expects the composition of this funding requirement to change, representing around £0.5m to become more liquid over the remainder of FY21.
Equals said its ‘engine of growth continues to be the Group's B2B initiatives, encompassed in the Equals Money product suite for corporate customers.’ It said it continues to invest its increased revenues in additional product development and marketing to drive further growth.
Ian Strafford Taylor, CEO of Equals Group, commented, “The hard work undertaken on both product development and cost restructuring over the last twelve months has really paid off as can be seen from these excellent revenues for H1-2021. Given the growth trajectory, we remain highly confident about the revenue prospects for the second half of the year.”
*WATCH* Paul Hill from Vox Markets discusses financial and operations progress achieved for the the 6 months to 30 June 2021 with Ian Strafford-Taylor, CEO.
Shares in Equals Group have increased by over 65% in value since the beginning of 2021.
Reasons to Follow
EQUALS is an international payment services provider to the retail and corporate segments of the UK market, which combined is estimated to be worth £60bn a year.
The cloud-based peer-to-peer payments platform is widely regarded in the industry as ‘best-in-class’ enabling personal and business customers to make low-cost multi-currency payments across a range of FX products, all via one integrated system.
The FairFX platform facilitates payments either directly to Bank Accounts or at 30 million merchants and over 1 million ATM’s in a broad range of countries globally via Mobile apps, the Internet, SMS, wire transfer and Mastercard/VISA debit cards.
Successful Acquisition Strategy
In recent weeks, Equals said it is ‘increasingly being approached by other international payments businesses’ and highlighted that it will continue to selectively acquire companies.
Last month, Equals acquired certain assets from the international payments business of Effective FX (EFX) for a consideration of £1.6m, to be satisfied from existing cash resources.
The ‘earnings enhancing acquisition’ primarily comprises the purchase of EFX's client book of more than 200 corporate clients, from a wide range of industries, which generated adjusted EBITDA of approximately £0.5 million for the 12-month period to 31 August 2020.
Equals said the acquisition showed the continuing growth of the Group in B2B international payments via its three routes to market: ‘firstly, directly to its own customers; secondly, via its Equals connect B2B2B strategy; and thirdly, via the acquisition of compatible businesses.’
CEO, Ian Strafford-Taylor, said the acquisition highlighted Equals’ key strengths in the B2B international payments arena; its openness to M&A opportunities, its versatility in acquiring volumes and revenues, and the strength of its payment’s infrastructure and technology.
Positive Trading
In a trading statement released in January 2021, Equals said it had significantly reduced its cost base leading to both cash break-even and an increased cash position of £8 million.
This comes in ‘comfortably ahead of market expectations’, it noted, with current market expectations for adjusted EBITDA averaging £0.55m with net cash averaging £6.75m FY20.
The figures stated in this previous announcement are unaudited and the Company told investors that it expects to report its audited financial statements in early April 2021.
Compelling Buy-Side Valuation
Recent research from PMH Capital has confirmed Equals is expected to grow at approximately 16% in FY21e, which is above the average growth rate of 12% for the Fintech and e-payments segment of the Technology sector.
Based on these assumptions, the current valuation for the company appears extremely compelling on a forward FY21e EV/Sales multiple of approximately 1.2x versus 6.9x for its peers.
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