Why the PayGroup share price surged 19% higher today

The PayGroup Ltd (ASX: PYG) share price had an impressive run on the ASX today after releasing its full-year FY20 results.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The PayGroup Ltd (ASX: PYG) share price had an impressive run on the ASX today, closing 12.10% higher after being up by as much as 19.35% throughout the day.

Based on today's closing price of 69.5 cents, PayGroup's market capitalisation stands at only $48 million. So it's important to note that we're very much at the smaller end of the ASX spectrum here.

PayGroup is a specialist human capital management software and services provider, tasked with performing payroll, pay to bill, human resources, and treasury services on behalf of clients. It has 2 businesses, PayAsia and Astute, the latter of which was acquired in late 2019.

The company operates primarily in the Asia Pacific region for multinational companies and has 875 clients throughout 33 countries.

Why did the PayGroup share price race higher today?

Well, this afternoon, PayGroup released its preliminary final report for the year ended 31 March 2020.

The company delivered FY20 annual recurring revenue of $17.8 million, exceeding guidance of $17.5 million. Meanwhile, revenue came in at $10.9 million, up 110% on the prior corresponding period, including a $2.9 million contribution from Astute.

Astute provides workforce management solutions, automating placement through to payroll and invoicing. The acquisition was completed on 1 November 2019 and its 5-month contribution to FY20 results have reportedly exceeded forecasts. During this period, Astute has been profitable and cash flow positive.

Overall, PayGroup reported growth across all segments in FY20, including 26.5% growth in PayAsia payslips. This was supported by strong sales momentum and new contract wins from the fourth quarter of FY19 and throughout FY20.

Additionally, PayGroup launched its Treasury Services offering in the second quarter of FY20. Live treasury transactions processed increased from 155 per month at the end of 1H20 to 3,653 per month at the end of 2H20. Given strong initial customer demand in the first year of its launch, PayGroup expects this offering to make a growing financial contribution in FY21.

The company's new contract wins in FY20 amounted to $5.5 million, representing an increase of 12% on FY19. Meanwhile, new contract wins in FY21 to date (being 1 April 2020 to 25 May 2020) total $2.7 million.

Looking to cash flow, the company saw an improvement in its operating cash flow from negative $4.8 million in FY19 to negative $0.1 million in the current period. Cash flow momentum was particularly strong in the second half of FY20 on the back of continued new sales uplift and the Astute acquisition.

The company's cash balance as at 31 March 2020 stood at $2 million, supported by a $3 million capital raising in November 2019.

COVID-19 update and outlook

As previously announced last month, PayGroup's business has been able to adapt to a remote working environment with limited impact.

The company notes that COVID-19 stimulus packages have added to payroll complexity, which increases opportunities for both its Astute and PayAsia businesses. Against this backdrop, its sales pipeline continues to strengthen.

PayGroup expects to continue to deliver improved operating cash flows and the pathway to positive statutory earnings in FY21, driven by cost efficiencies, continued sales momentum and the positive contribution from Astute.

Commenting on the full-year results, managing director and CEO Mark Samlal said:

"We are only 2-months into our FY21 year and we expect that our businesses will continue to perform well, even if various lock down provisions continue to exist globally. In Australia we see that businesses are hiring, particularly contractors, which will positively improve Astute's metrics. Our key markets in Asia are very resilient with many countries back to work."

"We enter FY2021 in a good position, with a strong book of recurring revenue, 95% client retention, a cost efficiency plan and strong industry fundamentals in spite of the current COVID-19 headwinds," he added.

Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Technology Shares

two computer geeks sit across from each other with their laptop computers touching as they look confused and confounded by what they are seeing on their screens.
Technology Shares

What's happening with ASX 200 tech shares following the Nasdaq rout?

Aussie tech investors will be eyeing the big retrace in the Nasdaq overnight.

Read more »

Lithium ion batteries
Earnings Results

Needs a recharge: Novonix share price sees red after Q3 earnings

Investors were likely expecting a tad more.

Read more »

Two boys in business suits holding handfuls of money
International Stock News

Here are the US stocks that just delivered James Packer a $590 million profit

US tech continues to dominate.

Read more »

Man pointing at a blue rising share price graph.
Technology Shares

Guess which ASX tech stock just leapt 26% on accelerating growth

Here’s what’s grabbing investor interest.

Read more »

A woman screams and holds her hands up in frustration.
Technology Shares

Cettire shares crash 17% on sinking profits

This online retailer has had a tough start to FY 2025. Here's what you need to know.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Technology Shares

Why this top broker just upgraded DroneShield shares

Bell Potter sees recent share price weakness as a buying opportunity for investors.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
Technology Shares

Big Tech could make or break ASX shares this week. Here's why

This week will be huge from an earnings perspective.

Read more »

Focused man entrepreneur with glasses working, looking at laptop screen thinking about something intently while sitting in the office.
AI Stocks

Down 12% in a week. Why are Appen shares sinking again?

The tech stock continues its slide today.

Read more »