Edison Investment Research Limited
London, UK, 26 March 2020
Edison issues outlook on Boku (BOKU)
Boku reported FY19 results that were largely in line with its January trading update. The Payments division doubled adjusted EBITDA in FY19 highlighting the scale benefits of this business, while the Identity division saw a reduced EBITDA loss on revenue growth of 26%. As COVID-19 is currently having limited net impact on the business, we make only minor changes to forecasts. We note that increased volumes in the Payments business, as people seek digital entertainment while self-isolating, could drive upside to our FY20 forecasts.
Boku is trading at a discount to the average of payment processor peers and identity management peers on an EV/sales and EV/EBITDA basis. However, we believe that the investment Boku is currently making in the Identity business is masking the performance of the Payments business. As the two business have different growth and profitability dynamics, we take a sum-of-the-parts approach to assign value to each separately, generating a group equity value of $352m or 117p per share. Excluding the Identity business entirely, the group would be worth $327m or 108p per share, still well ahead of the current share price. Key catalysts for the share price include evidence of growth in the Boku Identity business, new major merchants being signed up in either business or a growing contribution from the wallets service.
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