Equals Group Plc (EQLS) is a provider of international payment services. The company operates through the following segments: Currency Cards, International Payments, Travel Cash, Banking and Central. It develops a cloud-based person-to-person payments platform that enables personal and business customers to make payments in a range of currencies and countries. The company was founded by Ian Alexander Irving Strafford-Taylor on March 4, 2014 and is headquartered in London, the United Kingdom.
Originally called FairFx, Equals’ success is built on the back of a prepayment card designed for the travel industry. The company has diversified from heritage foreign exchange businesses of international payments and travel money, and integrated money management solutions for consumers and businesses, covering banking and payments. The former model was primarily servicing the B2C model.
However, because newer entrees were hurting the margins by effectively offering the same products for free, the company recognised a need to adapt. By repositioning itself as a B2B challenger bank in 2017, it was able to attract customers away from the more traditional banks, claiming to offer a better service to SMEs through a higher tech-led model with the security features you would expect:
“With numerous well-known corporates on our roster, we provide companies with solutions to their FX needs, corporate spend requirements, and can onboard them for faster payments. Additionally, with Equals Money we can set up a special purpose vehicle (SPVs) for international groups often in 24 hours”
Equals Money, launched in 2021, offers equal opportunity for everyone to open a personal bank account. It does this by not allowing simple things like a credit check to get in the way.
The company was originally called FairFx, changing its name in 2019. Sometimes a name change can be read as a shady strategic move in an effort to hide a company’s dodgy history, but that is not the case here. The company has been busy restructuring itself, making it leaner and more efficient, which usually translates into costs being cut and an improvement to the bottom line.
FY-2020 Group Highlights
- Successful refocus on business customers with B2B transactions up by 32%
- International Payments: revenue increased by 46%, and its B2B segment revenue increased by 51%
- Total B2B revenues represented 70% (FY-2019: 56%)
- Non-travel-money revenues increased by 18% to £26.6 million (FY-2019: £22.9 million)
- Over 18,000 active unique B2B customers
- Total underlying expenditure reduced by 18% from £30.6 million to £25.0 million
- Cash break-even achieved in Q4-2020
- Further bolt-on acquisition of Effective FX in October 2020
- Adjusted EBITDA of £1.2 million, ahead of market expectations and achieved against Covid-19 and Wirecard headwinds
- Despite the 50% reduction in staff costs capitalised and single-year R&D tax relief, Covid-19 and Wirecard headwinds led to loss after tax widening from £5.4 million to £6.9 million
Q1-2021 Group Highlights
- Launch of Equals Money ‘an account you can bank on’
- Revenue in Q1-2021 totalled £8.0 million, an annual run-rate equivalent of £120k per employee.
- Current free cash position £9.0 million – equivalent to 5 pence per share
- Costs remain under tight control and headcount stable at 250
- Q1-2021 performance exceeded management expectations
So with all of this positivity in mind, what caused the drop-off in 2019?
The downward trend
A quick look at the share price chart shows the company was already suffering before Covid-19 and the price has yet to recover, so it is worth looking at the triggers for the decline before we go any further.
During mid to late 2019 the company passed the hat around the market for a mix of acquisition and operational needs. This included the purchase of international payments business, Hermex International, for £2 million. The company raised £1 million at £1.175p on 8th August 2019.Just a few days later, the company confirmed the press that it was seeking further funding of £14 million at 110p, which very quickly became a £16 million discounted equity fundraise and open offer in order to fund growth. In the end, it only succeeded in raising £14.3 million.
All this equals shareholder dilution, hence the share price fall from 150p high of October 2018, or even 130p in July 2019. Fast-forward to now, Crystal Amber appear to have slammed the brakes on the recovery from the floor of 20p to current levels by reducing their holding from 25% to 22.4%. Keep this in mind if you are thinking of buying.
On the road to recovery
Commenting on the Final Results for year ended December 2020, Ian Strafford-Taylor, CEO of Equals Group plc, said:
“Despite a number of external headwinds, the operational and financial progress made this year as we focused our business towards B2B is something I am incredibly proud of and highlights the quality of the Equals Group.”
“As the UK payments sector becomes increasingly crowded with specialist operators, our unique proposition spanning banking services, international payments and card-based solutions are proving to be a major differentiator for our customers, driving loyalty and new customer acquisition. This, coupled with the benefits of our accelerated planned restructuring and right-sizing of operations, places us in a really strong position as we move past the challenges of 2020 and continue to focus on driving further B2B-led growth.”
As you can see, the company has put in the hard graft over many years. It has adapted when needed, it has put in solid foundations for growth, and invested wisely. All things considered; it is plausible to think the company will soon be generating significant net cash. The sector is also ripe for M&A activity from the traditional banks as they seek to protect their turf or lose their market share. This would not be tolerated by their investors.
Possible M&A
The Times reports JP Morgan spent months searching the market before concluding the deal to buy Nutmeg, the online wealth manager, before the launch of its digital bank in the UK in the autumn. The £700 million purchase marks the first substantial acquisition by a traditional bank of a British fintech and is expected to be the first of many.
There has been a lot of Fintech activity in 2020/21, particularly in the banking sub-sector where it has attracted the most attention because Covid-19 has accelerated digital adoption among banking customers. Fear does this, I guess.
The most attractive area within banking M&A activity will be the challenger banks offering access to B2B products and clients that facilitate the automation of many operations. Those B2B operators do not have customer acquisition costs, nor do they need to spend money to build a brand like other fintech players. This makes Equals look attractive for M&A activity from the more traditional bank looking to save building their own sub-arm, which will be both costly, and time-consuming – it is much easier to buy a ready-made suitor that has all the components established and looks attractive from a cash generation perspective. This makes Equals an attractive proposition, but not the only factor to consider.
The company’s SME-focused Equals Money is an attractive platform because it features best-in-class bank-grade connectivity technology that sets the company apart from other disruptors in the sector. It grants access to expert support for payments and expenses for clients.
Equals Group appears to be well on the road to recovering after putting a two-year disruptive period behind it. I expect the company to flourish over the coming months and years if it survives M&A activity from the more traditional banks.
Elric Langton
Do you agree that Equals’ future is looking positive, or are you detracted by the heavy competition? We’d love to hear from you in the comments section below.
Thank you, very informative article.