ThinkSmart Ltd

ThinkSmart Ltd (LON: TSL) is an FTSE AIM All-Share listed specialist digital payments platform business.

Investment Rationale – SPECULATIVE BUY at GBX 32.00

• Business Update: On 3 February 2022, TSL affirmed that it has acquired a portfolio of leases for £1.2 million from Secure Trust Bank PLC after terminating a £2 million funding agreement.
• Decent Fundamentals: In FY21, TSL’s profit after tax jumped 35% year-on-year to £71.7 million, and the Group retained 10% shareholding in Clearpay. On 10 December 2021, the Board also confirmed the return of capital of 4.4618 cents per share, while the shareholders also approved the special dividend of 0.7874 cents per share. It is reflecting confidence in the outlook.
• Technical Indicator: From a technical standpoint, 14-day RSI (~21.05) indicates an oversold position, while the price is trading close to the lower standard deviation of the Bollinger bands.
• Undervalued Multiples: On a trailing 12-month basis – TSL’s EV/Sales and Price/Book multiples were undervalued against the average of the Industrials sector.

Key Risks

• Macroeconomic Uncertainty: As the Federal Meeting has signalled the interest rates hike and monetary policy tightening, it can keep the equity market under pressure.
• Subdued UK Macroeconomic Indicators: The UK Composite PMI fell marginally to 53.4 in January 2022 from 53.6 in December 2021, while the UK consumer price inflation breached a nearly 30-year high of 5.4% in the 12 months to December 2021.

2021 AGM Statement and Business Update (as of 10 November 2021)

• Value Accretion: FY21 delivered significant value accretion for shareholders. Moreover, the Company's 10% shareholding in Clearpay UK helped them get the benefit of rapidly expanding consumer finance space.
• Financial Position: As of 14 October 2021, TSL reported net cash of nearly AU$13 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: EV/Sales Approach (FY22) (Illustrative)

*Peers: Willis Towers Watson PLC, IP Group PLC, Record PLC, and Manolete Partners PLC.

*All peers considered are LSE-listed Companies from the Transaction Processing Services industry.  

Conclusion 

On 21 December 2021, TSL clarified it will receive 1,650,000 Afterpay shares in consideration for the sale of its Clearpay holding, and the Company has no obligations to share any of the Consideration Shares under the ESOP. The Board sees continued long-term value accretion with this outcome. TSL reported a significant top-line and bottom-line growth in FY21. It also delivered a special dividend and capital return of A$6.5 million. Moreover, the increased adoption of 'buy now pay later and credit cards shall further benefit the Company.

Notwithstanding, TSL is trading as a penny stock with small market capitalization. Therefore, investors should gauge their risk-return profile before putting on this stock. The stock made a 52-week High and Low of GBX 112.30 and GBX 30.34, respectively.   

Based on the decent fundamentals, increased profitability, and shareholders’ return, and favourable valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on ThinkSmart Ltd at the closing market price of GBX 32.00 (as of 9 February 2022). 

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: Dividend Yield may vary as per the stock price movement.

Note 4: 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 unfavorable movement in the stock prices.

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