"Touchcorp Ltd (ASX:TCH) set for year's biggest IPO (Initial Public Offering) to date" wrote Fairfax media earlier this year. That wasn't saying much, giving that Touchcorp was worth less than $200m at the time.
However, the small-cap software provider has acquitted itself quite well, delivering solid increases in revenue and profit and – so far – avoiding the 'IPO curse' that sees many IPOs trade below their offer price in their first year out.
Here are the highlights from today's half-year results announcement:
- Revenue rose 69% to $18.42 million
- Net Profit After Tax (NPAT) fell 80% to $0.79m
- Excluding capital raising expenses, NPAT rose 10% to $4.36m
- Cash at bank of $10.36m, no debt
- Outlook for continued growth through a variety of channels, both acquisitively and organically
So What?
If you've never heard of Touchcorp before, I'm not surprised. In addition to being a recent listing, it's a provider of 'bespoke software payment solutions' a term that covers a broad umbrella of services in the retail and payments sector.
Touchcorp is behind prepaid calling cards, gift vouchers – think Myer Holdings Ltd (ASX: MYR), lottery tickets, phone credit – think Telstra Corporation Ltd (ASX:TLS) – and other services that can be purchased at stores like 7-Eleven (which is a partner of Touchcorp).
Touchcorp also provides online payment solutions to a variety of customers and is looking to broaden its options in this area with the acquisition of 35.6% of Afterpay Holdings, a payment solutions provider to online retailers.
In terms of results, Touchcorp has performed quite strongly in its first six months out and the company is definitely justifying its strong share price performance since listing. Management declined to provide a firm outlook but stated that its goal is to deliver long-term returns to shareholders, which will come from:
- Organic growth, as the businesses it serves grow and conduct more transactions
- Increasing the number and range of services offered to customers
- Broadening the range of customers and countries Touchcorp operates in by expanding its services or helping clients expand into new areas
Touchcorp recently partnered with a Northern European retailer, Reitan, and recently established subsidiaries in Singapore and Malaysia which provides the company great exposure both to booming economies and a huge pool of customers.
Now What?
The question of whether to buy Touchcorp and what price to pay is a little tricky. On one hand the business does have a sound financial position and appears to have a number of viable, long-term growth pathways available.
On the other, Touchcorp is dependent on its relationship with key customers for most of its revenue (which is contracted) and an increasing number of companies are moving into or reinventing themselves as online payment businesses. So while Touchcorp might look promising, it is not without risk and I believe buyers should consider taking minimal exposure while they see how the company evolves.
