Wise PLC

Wise PLC (LON: WISE) is a global technology services provider. It offers payment network and money transfer services. It processes over £5 billion cross-border transactions every month.

Investment Rationale – BUY at GBX 603.20

• Bright Guidance: For FY22, revenue growth is anticipated to be around 30%, while the gross margin is expected to be between 65-67%.
• Robust Business Performance during Q3 FY22: The top-line revenue grew by 34% YoY and 13% QoQ to £149.8 million. Moreover, the volumes had shown a YoY growth of around 38% and QoQ growth of approximately 15% during Q3 FY22.
• Positive Technical Indicator: The 14-day RSI (~36.36) is in the oversold territory, while the stock price is trading close to the lower standard deviation of the Bollinger Bands.
• Better Profitability: The Company’s gross margin, operating margin, and net margin came out to be significantly ahead of the respective industry medians during H1 FY22.

Risk Assessments

• Weak Macroeconomic Conditions: After the Covid-19 pandemic, there is acute pressure on consumer disposable income levels amid inflationary market conditions. Moreover, the supply chain disruption could also increase the operating cost.
• Financial Risk: Several financial risks associated with fluctuation in the foreign exchange & interest rates, availability of adequate working capital, and credit defaults.

Q3 FY22 Trading Update (for the three months ended 31 December 2021, as on 19 January 2022)

 (Source: Company Website)

• Customers Growth: The number of active personal customers grew by 26% to 4.1 million during Q3 FY22. Adjacently, the number of active business customers rose by 39% to 250k when compared with the prior year.
• Operational Progress: The Company had launched a Wise card in Canada, Brazil, and Malaysia during the period.

Share Price Chart (since 07 July 2021)

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative)

Conclusion

Wise has produced strong financial numbers during Q3 FY22 despite the ongoing Covid-19 induced operational challenges and lockdown restrictions worldwide. The Company has depicted a significant upward momentum in the total revenue, volume, and number of customers. Looking ahead, the Company has anticipated a revenue jump of around 30% for FY22. The stock made a 52-week high and low of GBX 1,176.50 and GBX 566.60, respectively.

Based on the revenue growth, increased volume, customers growth, bright outlook, supported by the valuation conducted above, we have given a “BUY” recommendation on Wise PLC at the closing market price of 603.20 (as on 31 January 2022), with lower double-digit upside potential based on 116.40x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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