𝛼SKBANXA Holdings Inc: Providing Secure Access to Digital Assets
BANXA Holdings Inc
Providing secure access to digital assets
BANXA Holdings Inc (TSX-V:BNXA) is a global Payments Service Provider (PSP) serving the digital asset/cryptocurrency industry. It does so by using its platform as a “bridge” between the fiat/cash/banking system and the digital asset/exchange system. The company is headquartered in Australia where it has pioneered easy to access, local payments platforms for retail investors to acquire cryptocurrencies. More recently it has expanded its infrastructure to the B2B market, partnering with the leading cryptocurrency exchanges, including OK Group, Binance, KuCoin and EDGE Wallet. It has also expanded to the UK, the European Union, USA and Canada. Since the launch of its flagship B2B product, BANXA has seen significant growth in Total Payments Volumes (TPV), including 1,000% growth in January 2021 TPV to A$55m. BANXA listed on the Toronto Stock Exchange on January 6, through a reverse merger with Toronto-listed A-Labs Capital I Corp, with a market capitalisation at listing of C$40.7m. We initiate coverage of BANXA with a base case discounted cashflow derived valuation of C$3.47/share, which implies a CAGR of 36% in 10-year free cashflows, in a sector that is forecasted to generate >50% CAGR over the same period.
Scope
This report has been commissioned by BANXA to present investors with an explanation of the business model and to explore the value created from a range of possible outcomes.
Business model
BANXA earns revenue from commission fees & spread. It is therefore a “flow” based business, similar to international forex companies such as PayPal, TransferWise or Ant Financial and Australian forex companies OFX and EML Payments. It operates in both the B2B and B2C markets. For consumers, the company has pioneered physical point of sale locations through its partnerships with Australia Post (4,500 post offices) and blueshyft (1,200 newsagents) and online access through its premium branded “bitcoin” domain names. It has a number of products, including its leading product the BANXA platform, which integrates into client/partner platforms - software and hardware wallets, websites and cryptocurrency exchanges. The platform has been built inhouse, and the Intellectual Property (IP) behind the platform, which includes Machine Learning, Compliance, KYC (“Know-Your-Customer”) and Cash Flow positioning, is owned by BANXA and is integrated with a number of specialist data providers.
Base case DCF valuation of C$3.47/share
We have used the discounted cashflow methodology to value Banxa, applying a weighted average cost of capital (WACC) of 13.5% to reflect the high risk/return nature of the investment and a terminal growth rate of 2.2%. This derives a base case DCF of C$3.47/share, based on an AUD/CAD exchange rate of $0.98. Our valuation implies a 10- year CAGR in free cashflows of 36%, compared with the forecasted industry growth rate of at least 50% for the same period. We have also examined a more mature group of Australian listed fintechs focused on payments to determine an appropriate revenue multiple to apply to BANXA. Our analysis yielded an adjusted revenue multiple of 23.4x which, when applied to BANXA’s FY20 revenues, delivered an implied peer group valuation of C$155.3m or C$3.82/share. In our view, continued momentum in BANXA’s total payments volume together with the delivery of stable gross margins should underpin its share price in the short to medium term.
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