TIO Networks Corp. (TNC – V)
November 17, 2015
Bringing Banking Options To The Masses
Company Profile
Vancouver-based TIO Networks is a leading North-American focused, multi-channel expedited bill payment processor. The company has over 10 years of experience processing electronic bill payments and currently transacts (pro-forma) over $8B in bill payments annually.
Investment Thesis
TIO is in the process of closing a (we believe) transformational acquisition, which could significantly increase investor awareness of this company, thereby helping to drive a healthy multiple expansion.
Investment Highlights
- TIO’s services are targeted to the unbanked or underbanked, which represents ~28% of households in the US or ~68M individuals. Within this demographic, Payment solutions (i.e. TIO’s focus) represents a market opportunity of ~$8.9B.
- The company’s bill payment processing solutions reach the
“cash-preferred”, unbanked, or underbanked user community at over 70k payment locations across the US.
- TIO’s platform is tied to the accounting back-office of some of the largest utility, wireless and cable providers in North America. In total, the company has over 10,000+ billers in the TIO network, including hundreds with direct back-office integration.
- TIO has a very attractive business model including ~95% revenues transactional/recurring in nature with 50% gross margins and growing.
- The company has augmented its organic growth with acquisitions and is in the process of closing its largest to date (i.e. Softgate Systems), which should take revenues over $100M and EBITDA over $10M. Softgate also significantly increases TIO’s national network of walk-in payment locations and reduces its customer concentration, which has historically been a key risk (top 2 customers goes to ~20% of revenues from well over 50% previously). With its increased scale, we believe TIO could be in a position to attract more direct billers to its network, thereby increasing revenues and margins.
- We also believe TIO’s ability to cross-sell additional services to end-customers as representing an important growth driver.
- For the purposes of our estimates, we are including Softgate given our view of the relatively low deal risk. Based on our pro-forma estimates, TIO is currently trading at 10.4x EV/EBITDA (FY+1), versus the peer group at 13x.
- We are initiating coverage with a Buy rating and $2.15 target price, which is based on 14x FY17e EV/EBITDA.
