SafeCharge Three Years After IPO

by | Jun 5, 2017 | Payments

SafeCharge 3 Years After IPO

 

In this post we look at SafeCharge, a medium sized payment processor and recently formed acquirer. We look at the following items; history, the IPO, recent performance, drivers of growth so far, recent strategic moves and execution challenges.

 

SafeCharge History

 

SafeCharge began as an Israel based company focused on providing payment gateway services to mainly online gambling companies. The main founder and majority shareholder of SafeCharge, Mr. Teddy Sagi is also the majority shareholder of Playtech, a leading gambling software and solutions provider. This close relationship with Playtech gave SafeCharge access to gambling merchants and a good understanding of their needs. Until recently SafeCharge focused on providing the payment gateway layer only, leaving the acquiring services to acquirers such as Worldpay mainly but also Barclays, AIB and others.

 

SafeCharge IPO

 

SafeCharge listed on the London AIM exchange in 2014 with a strong history of past performance and an attractive path for growth. At the time of listing SafeCharge was processing $4.8 billion in annual volume with revenue of $43.18 million. The revenue to volume ratio of 0.9% healthy given acquiring was not being performed in house. At the time SafeCharge had gross profit of $24.89 million with a gross profit to revenue ratio of 57.6%. The company listed with an adjusted EBITDA of $11 million. With fully diluted ordinary shares of 154,938,000 and a list price of $2.67 (USD to GBP at that time at 1.65), the company listed at attractive multiples, a testament to the potential that investors believed could be unlocked.

 

SafeCharge Recent Performance

 

SafeCharge has posted positive recent performance for year ended 2016 on all fronts. Processing volume has grown to $8 billion per annum, nearly double the volume at the time of IPO three years ago. Revenue has grown to $106 million almost 2.5 times the revenue at the time of IPO. The revenue to volume ratio has improved from 0.9% to 1.33% perhaps driven by almost a billion of acquiring volume being brought into the Group’s in house acquiring. Gross profit has also more than doubled to $60 million. The gross profit to revenue ratio remains consistent at 56.6%. An adjusted EBITDA of $33 million is a three fold increase from the time of IPO. With a market cap just over $ 500 million the company is trading at an attractive TTM P/E of 15.

 

SafeCharge Drivers Of Growth So Far

 

A continued expansion into the company’s core market of gambling with organic growth from existing merchants but also the signing of large new merchants such as Ladbrokes and Paddy Betfair

Successful expansion from the core target vertical of gambling to the related and profitable verticals of Forex and Binary Options

Transfer of nearly a billion dollars of volume to own acquiring with the resulting increase in profit margins for the Group

Launch of own card issuing capabilities offered via the Pay.com brand and helped by the acquisition of 3V Transaction Services

Expansion of expertise in gambling, forex and binary options verticals to merchants in the Asian region including cross selling to gambling, forex and binary options merchants access to South East Asian consumers through the partnership with 2C2P

Expanding into card present payments through a minority investment in Nayax, providing acquiring services for card present transactions and launching a branded POS device

Signing on El Al, the first airline customer

Offering of white labelled banking services through the partnership with Saxo Bank


SafeCharge Recent Strategic Moves

 

Expansion into the US through a partnership with Chase for US acquiring

Opening of Southeast Asian offices and membership of UnionPay International (CUP)

Strategic divesting of merchants from high risk categories such as binary options

Focus on diversifying merchant categories by targeting Travel, Online Retail, Soft Gaming and Marketplace merchants

 

SafeCharge Execution Challenges

 

Growth into the saturated US market will be challenging. A strategic move could be the targeting of Fantasy Sports merchants in the US via Chase to obtain a foothold in the country. There are synergies between SafeCharge’s experience with gambling and Fantasy Sports. Chase competitor Vantiv controls most of the Fantasy Sport volume. Interestingly SafeCharge merchant Paddy Betfair made a bet on US Fantasy Sports recently through the acquisition of Draft.

Growth into the Travel market will also take time and investment. SafeCharge likes to grow through investments and partnerships. A strategic investment or partnership with a travel / airline services provider could likely be on the cards to overcome this challenge.

 

Conclusion

 

In conclusion SafeCharge has come a long way from being focused solely on the gambling vertical and being the payment partner of sister company Playtech to more than doubling volumes and profits in three years since the IPO. The company is making the right strategic moves in expanding geographically (US and Asia), channels (POS) and targeted verticals (Travel, Retail) while divesting itself of higher risk volume and merchant categories (Binary Options). Execution challenges exist but given its history the company should be able to tackle these successfully through a combination of strategic investments, partnerships and organic growth.

Disclaimer: This contents of this post are opinion and not investment or financial advise. Gropay does not have any relationship or dealings with SafeCharge.

 

Update 13 September 2017

 

SafeCharge released their H1 2017 results yesterday. The key point of note in our opinion was the declining rate of growth in almost all key metrics and negative growth in Gross Profits, EBITDA and Cash Flow. The reason provided for this decline in performance was the move away from high risk industry sectors begun by the Group in 2016.

The lower risk industry sectors that SafeCharge is now targeting generally deliver lower margins than the high risk sectors that the company has historically targeted (risk = margin). These lower risk sectors are however generally already well serviced by existing providers (e.g. Worldpay, Ingenico etc). Payment processing is an extremely sticky business as it requires the merchant to divert valuable development time which could be used to invest in the merchant’s own product into integrating with a new payment provider. Not to mention the impact on the merchant’s operations and accounting in having to adopt to the new payment partner’s processes and reporting. Most incumbents like Worldpay, Ingenico already have extremely strong products as a result of decades of investment so it is unlikely that SafeCharge is going to be able to convince lower risk merchants to switch based on product. One of the only tools available to the company then to entice these merchants to switch is cost. Hence the resulting impact on revenue and profit growth.

Worldpay also released their H1 2017 results and reported a strong rate of growth on all fronts fuelled mainly by its e-commerce division. Suggesting that once SafeCharge has completed its refocus from high to low risk businesses it could also enjoy the benefits of low customer churn and continuing growth of e-commerce.

SafeCharge has a strong and experienced management team and in our opinion it is not a question of whether they will be able to make this transition but how long it will take them. They have a strong balance sheet with a $113M cash balance so they have some room to complete this risk portfolio re-balancing. We believe that in time the company should also be able to increase volumes and margins through the newly acquired low risk businesses through a focus on cross selling ancillary products and through more efficient management of these clients.

2 Comments

  1. Luke Faulkner

    Really interesting read! Would it be possible to chat about it?

    Reply
    • Gropay

      Hi Luke, sure. I’m sending you an email. Let’s set up a time.

      Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

About

Gropay provides management consulting and interim management services globally in the areas of online payments, mobile payments and point of sale POS payments. Our clients span the entire payments value chain from schemes to merchants and also include private equity investors, technology and mobile companies. The Gropay team consists of proven industry leaders with extensive experience both on the demand (merchant) and supply (Payment Service Provider, acquirer, scheme) sides with a focus on sales and business development, operations, risk, compliance, valuation and due diligence.

Visit our homepage

YOU MIGHT ALSO LIKE

GDPR for Payments

GDPR for Payments GDPR is an important EU wide regulatory mandate. It provides increased protection of individual privacy and gives individuals more control over the information they share. In our view GDPR is an important element of building a scalable data centric...

read more
US Supreme Court repeal of PASPA

US Supreme Court repeal of PASPA

US Supreme Court repeal of PASPA On Monday, May 14, 2018, the Supreme Court of the United States held in the Murphy v. National Collegiate Athletic Association case that the federal Professional and Amateur Sports Protection Act (“PASPA”) violated the Tenth Amendment...

read more
Gropay’s 5 Tips For The Holiday Season!

Gropay’s 5 Tips For The Holiday Season!

GROPAY'S 5 TIPS FOR THE HOLIDAY SEASON With all the preparations for the holiday, last week deadlines, the multitude of drinks, parties, last minute shopping as well as high expectations from family and friends, it is easy to get lost in this busy time before the...

read more
Is the future of payments happening in India now?

Is the future of payments happening in India now?

India Makes Important Advances in Biometric Payments In India it’s already possible for a consumer to authorise and authenticate a payment with their fingerprint or iris scan. As a largely cash based economy India has leapfrogged the use of Cards and Smart Phones for...

read more
How Do Bitcoins Impact Online Merchants?

How Do Bitcoins Impact Online Merchants?

How do bitcoins impact online merchants? There’s a lot that has been said and written about bitcoins. They are the talk of the town these days. Undoubtedly bitcoins and related distributed ledger technologies will have a lasting impact on payments and financial...

read more
PSD2 What Will Really Change?

PSD2 What Will Really Change?

PSD2 What Will Really Change? There has been a lot written about the PSD2 and rightly so, it is important regulation soon to be enacted into legislation that will bring significant innovation and change to electronic payments. But what will actually change in the day...

read more
The Stamina Of Clinton Or Trump?

The Stamina Of Clinton Or Trump?

The Stamina of Clinton Or Trump There have been lot of comments made by presidential candidate Donald Trump triggering a lot of media attention and public debates recently. Not the most notorious comment, but still one that made me pause in the work I was doing....

read more
GDPR – Data Protection Gets Serious

GDPR – Data Protection Gets Serious

GDPR - Data Protection Gets Serious On 14 April 2016, the EU Parliament adopted the long awaited General Data Protection Regulation (GDPR) The GDPR will have considerable impact on all companies that provide goods or services to Europe, regardless of the company’s...

read more
Authentication – Payer! Reveal Thyself

Authentication – Payer! Reveal Thyself

Authentication - Payer! Reveal Thyself EPC releases results of latest consultations for e-mandate today: what does this mean for authentication and your online business? Earlier today, 5 April 2016, the European Payments Council (EPC) announced the launch of the...

read more
Fantasy Sports – It’s All A Fantasy

Fantasy Sports – It’s All A Fantasy

Fantasy Sports - It's All A Fantasy Fantasy Sports continue to gain popularity California recently introduced a bill to allow online sports betting. The motivation of this bill is believed to be the increasing popularity of fantasy sports. Although, the bill has yet...

read more
Cash – Kicking The Habit

Cash – Kicking The Habit

Cash - Kicking The Habit There was an interesting article in The Economist recently about strikes on the London Underground (Tube). Such strikes are commonly believed to have a short term net cost to the economy. However the article quoted a study by Oxford and...

read more
Data Protection – To Russia With Love

Data Protection – To Russia With Love

Data Protection - To Russia With Love Data Protection Russia Russia’s new data protection law came into effect on the 1st of September 2015. It’s now required by law to store personal details of Russian citizens on servers physically located in Russia. Copies of the...

read more

Dressing For Work – Looking The Part

I had a manager once who was a real mover and shaker in HR, brilliant in strategy and amazing to work with. Although visionary in his business outlook, there were some basic things that could really set him off when meeting new people: things like scruffy shoes. You...

read more

Tattoos – Ink At Work

Are Tattoos ever OK at work? I was HR Director at a large organization when I suddenly completely got caught by a curb ball thrown by one of my main stakeholders. “What is our HR policy on tattoos?”  I had to take a two second pause before responding with a gigantic...

read more

Wirecard’s $9 Billion Bid For Worldpay

Wirecard with a market value of $ 5.2 billion made a $9 billion bid for Worldpay. Is this a serious bid? What will Wirecard do with Worldpay? Wirecard has extensive experience with M&A and also in acquiring companies larger than itself and making it a success; as many...

read more

Changing Jobs – Stay Or Go?

Changing jobs - How long should you stay in your current job? In this day and age, most employees are not even aware that organisations used to have tenure incentives like a fancy watch, a toaster or at least a bunch of flowers when you reached your 20 or 25 years of...

read more

Distracted Living – A Simple Life

Distracted Living Psychology Today published an interesting blog on distracted living. Distracted living is where you miss out on much of your life because you generally aren’t paying attention, or your attention is so torn in many directions that your really do not...

read more

Is Visa Worried About Paypal?

Is Visa worried about Paypal? Visa recently published a report on Visa Checkout in which they stated that Visa Checkout delivers 17% better conversion than Paypal. One of the interesting points about this report is that Visa considers Paypal as enough of a threat to...

read more

Mergers And Acquisitions

How do I deal with my company going through a merger or acquisition? Working in the payments sector? There is a big chance that your company is engaged in a merger, is taking over another company or is about to become an acquisition. 2014 was a big year for payments...

read more

FOLLOW GROPAY

Pin It on Pinterest

Share This