Feb 8, 2024

Sentiment: Sideways

Type of Trade: Aggressive, High Growth

Industry: Merchant Payment - Banking and Fintech

Sector: Financials, Information Technology

As per November 2023 – Update

Tyro Payments is an Australian financial technology company specializing in providing routing payment solutions and business banking products to merchants. The firm primarily serves small to medium-sized enterprises in the hospitality, retail, and health sectors. However, Tyro has also been expanding its reach into other sectors such as trade, accommodation, and services verticals.

Tyro’s value proposition revolves around offering extensive industry-specific solutions, easy integration with point-of-sale systems, wide acceptance of various payment types, and a range of ancillary features. Despite its historical focus on in-store sales, Tyro is actively developing an online gateway to facilitate e-commerce transactions and is working on building out a multichannel payment solution.

Additionally, it’s worth noting that Tyro Payments has attracted interest from several institutions for potential takeovers. However, as of now, the management has not deemed any of these offers valuable for shareholders.

On January 27, 2023, Tyro issued a statement concerning a possible acquisition by Potentia Capital Management Pty Ltd (Potentia). Potentia initiated a period of non-exclusive due diligence, and subsequent updates indicated ongoing negotiations between Potentia and a consortium of co-investors. Their aim was to purchase 100% of Tyro’s shares through a scheme of arrangement. However, in a recent announcement on May 22, Tyro disclosed that discussions with Potentia regarding a potential change of control proposal have ceased. Consequently, Tyro’s share price saw a notable decline of 20%. While the company remains susceptible to acquisition by other entities, traders and investors are advised to refrain from holding TYRO solely for the purpose of takeover speculation and instead focus on understanding the fundamentals.

In December 2022, Westpac Group terminated discussions regarding a potential takeover of Tyro. This announcement precipitated a significant sell-off of Tyro’s stock.

🚩 In September 2023, Tyro initiated legal action against Kounta, accusing the Canadian-owned company of attempting to attract Tyro’s payment terminal clients in the hospitality sector. Kounta, acquired by Lightspeed Group in 2019, provides point-of-sale software and operates under Tyro’s financial services license. Lightspeed Group, with a smaller market presence compared to Tyro, competes fiercely with Tyro and major Australian banks, as well as Square.

The concern is the potential migration of Tyro clients to Lightspeed. However, it was later confirmed that Tyro clients would not face extra fees for integration, as originally proposed by Kounta. Despite this confirmation, Kounta has appealed the decision, and the legal process is ongoing.

We anticipate this issue will not significantly impact Tyro’s profitability for FY24, which should not greatly affect our trading strategy if purchased at a discounted price.

✅ FY23 Transaction value was up 25% YoY

✅ Gross Profit up 30% YoY to $193.2m

✅ EBITDA of $42.3m, up by 297% YoY.

✅ Free Cash flow of $5.7m

✅ Net Profit After Tax of $6m

✅ Recent trading updates show weaker discretionary spending and modest growth, but overall there is still growth.

✅ TYRO GO to compete with SQUARE. This is a great step in order to breakthrough into small businesses share, which SQUARE had most of the market due the highly versatile device. The difference here is that TYRO has also banking license, therefore a competitive advantage over SQUARE. TYRO GO should directly contribute to improve even further TYRO market share.

✅ Tyro has recently acquired Medipass – Medipass is Australia’s leading digital health payments platform. The acquisition adds an innovative cardless digital healthcare claiming and payment platform, that seamlessly links practitioners, funders and patients.

Revised FY24 GUIDANCE was still positive despite modest growth

Following the release of results of trading update in December Quarter, the Transaction volume is expected to growth from $45b to $47.5b, as well as gross profit of $215m, higher than pcp that was $206m.

EBITDA also is set to increase to $58m from $52m at target margin of 26% and positive free cash flow to continued increasing.

The company reported that are able to generate self sustaining levels of capital through continued improvements in operating leverage, with further scale and efficiencies available.
Potential share buy-back of up to $20m, subjected to regulatory approval.

Technical Analysis

Over the past two years, we’ve engaged in multiple trades involving TYRO, which have proven highly profitable for us. Notably, from August to November 2022, we achieved a remarkable 101% profit trade, executed with our VIP members. Despite TYRO being in a downtrend, we also managed to secure a 21% profit trade in 2023.

While the company’s fundamentals continue to strengthen, the stock is currently trading at a technically discounted price for the long term, as well as at fundamentally discounted levels. Moreover, macroeconomic conditions are poised to become more favorable, particularly if the Reserve Bank of Australia (RBA) begins cutting rates from September 2024 onwards.

The current resistance level stands at $1.10, and a breakout beyond this level could potentially trigger a further 20% rally. This is compounded by the anticipated trading effect of the upcoming 1H FY24 financial results and trading update.

It’s worth noting that if you had purchased the stock 52 weeks ago, you would have experienced a loss of 32% so far. As with any other stocks, we always suggest traders and investors to consider buying at technically discounted prices.

✅ Strong fundamental and positive guidance.

✅ Currently Trading at Technically Fair price for the short term and technically discounted price for the long term .

✅ Bullish Intersection level 1 and level 2 confirmed.

✅ Stock is currently trading above the EMA9 which represents a positive indication.

🚩 Relatively low trading volume for a small size cap can make the SP swing very wide in both directions.

Should I Buy (ASX: TYR) Now?

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