Over recent years, RS2 has been in a pivotal transition stage, in the process of on-boarding large clients in terms of the managed services business and adding new markets to its existing customer portfolio, with a special focus on the US operation, and more recently the acquiring business.
It is thus worth noting that on such premise, we are now seeing the Group reaping the benefits of the investments implemented in prior years, as witnessed through the Kalicom acquisition, the partnership with MoviiRed and the conclusion of a major processing outsourcing agreement with a large US bank.
Management recently confirmed that other major announcements, which amongst others include an update on the Group’s banking licence application, are expected to be unveiled within the coming months. In line with the fact that in the coming years the revenue generation is expected to include a different source (acquiring), we believe that obtaining the licence is crucial for RS2’s revenue structure to take place as without the licence, the acquiring business does not take off.
It is also worth highlighting that through the Group’s recent investments in quality relationships with new premium clients, the Group has already increased transaction volumes processed on its platform throughout H120 (on a comparative basis). This increase is expected to progress with the gradual increase from the aforementioned client and the on-boarding of other new clients.
In accordance to the Group’s growth in diversifying its business lines, we are also currently seeing the Group’s financial results largely impacted by a high degree of operational expenditure, thus resulting in additional pressure on profitability margins. However, as per guidance provided by management, we expect RS2’s margins to gradually start recovering from FY21 onwards, with the Group’s potential expected to reach its peak during FY22/23.
Investors also need to keep in mind that a fundamental attribute of the Group relates within industry in which it operates, where RS2 is uniquely positioned to assist COVID-19 hit merchants making the necessary business model changes to survive the pandemic, and even thrive in a post COVID-19 world. In this regard, management further confirmed that this crisis has resulted into additional business for RS2 which was not previously expected for FY20.
Moreover, in line with the high level of execution risk circulating within such a dynamic and technology-oriented industry, investors should adopt a long term investment horizon strategy, until the Group’s potential materialises and comes to fruition.
We believe that the Group’s end-to-end payment platform combining acquiring and issuing capabilities in one platform is a potential key differentiator going forward which could lead to incremental revenues. Based on this, combined with the continued development of RS2’s products offering we believe RS2 is well positioned to achieve its targets by continuing attracting leading financial organisations, processors and merchants.
The main downside risks are delays in implementation and ambitious guidance from management, which could significantly affect investor sentiment, should revenue growth not materialise over the projected periods. As such, we are continuously monitoring the situation and we look forward for further updates and announcements in connection to the Group’s growth prospects.
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