4 reasons why the Tyro (ASX:TYR) share price is rated as a buy

Local payments business Tyro Payments Ltd (ASX:TYR) is rated as a top buy by fund manager Ben Clark from TMS Capital.

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Ben Clark from TMS Capital has rated the Tyro Payments Ltd (ASX: TYR) share price as a leading pick for this year.

He actually made the pick for Livewire before the recent terminal outage, but he was reassured and impressed by the company's FY21 half-year result.

Why is Tyro Payments a top ASX share pick?

There were four key reasons for Mr Clark's original choice for Tyro.

He said that he's expecting volume transactions growth to increase as the impacts of COVID-19 and lockdowns subside. He pointed to the 29% growth in the first 11 days of December 2020 as proof of that.

Another reason was that Tyro Payments could expand its offering into "new verticals" and it could continue to take market share.

The third thing he pointed to was the launch of TyroConnect. He said this integration hub could increase customer loyalty as well as win over new merchants.

The final thing that Mr Clark pointed to was that the lending was going to resume and it used to make good profit, before COVID-19.

The outage

Tyro's payment terminals suffered connection issues from 5 January 2021. In the following weeks, the company worked hard to fix the issues that were initially affecting around 30% of merchants.

To make sure this doesn't happen again, it is going to provide all merchants with a dongle solution in combination with the standard terminals as an extra level of redundancy – the company was the first in the industry to do this.

Tyro's HY21 result

In the first six months of FY21, the company saw transaction value growth of 9.5% to $12.1 billion, although revenue fell by 2.1% to $114.8 million.

But the various profit lines of the business showed a large improvement. Gross profit increased 21.6% to $61.2 million, earnings before interest, tax, depreciation and amortisation (EBITDA) rose 464.2% to $8.5 million, pro forma earnings before interest and tax (EBIT) improved to a loss of $2.6 million and the pro forma loss after tax increased by 69.1% to $2.8 million.

The number of merchants on board with Tyro increased by 13% to 37,000.

What's the latest thoughts on Tyro Payments?

Livewire's James Marlay had a follow up chat with Ben Clark about Tyro, considering the outage.

Mr Clark said one of the positive surprises from the result was the increase in the EBITDA margin to 13.8%, thanks to more local card usage which led to better profit margins – as well as the company keeping a lid on costs.

He also noted that Tyro isn't experiencing much of a bad fallout from the outage, with consistent merchant applications. The payments business has provisioned $15 million to deal with the remediation.

Mr Clark said:

I think the evidence is there that this isn't hopefully going to be a really nasty event financially for the company. They seem to have kept merchants on board at this point.

TMS has increased its position in Tyro Payments on the back of the result and the plan to ensure that an outage like that doesn't happen again.

The Tyro share price is still 20% lower than where it was in October 2020.

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Tyro Payments. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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