7 October 2020 | 8:53PM AEDT Tyro Payments Ltd. (TYR.AX) Neutral Leveraged to structural shift toward card payments; initiate with Neutral TYR.AX 12m Price Target: A$3.20 Price: A$3.70 Downside: 13.5% Ashwini Chandra +61(3)9679-1045 | [email protected] Goldman Sachs Australia Pty Ltd TYR primarily provides in-store payment Grace Fulton, CFA +61(3)9679-1882 | [email protected] services as a merchant acquirer, along Goldman Sachs Australia Pty Ltd with a range of business banking products, to over 32k merchants in the Australian market. In our view TYR has several structural drivers of growth: (1) Card payment usage continues to rise as debit and credit card use increases relative to cash (card payments are now 61% of total transaction Key Data __________________________________ value, 2019), (2) market share opportunity from the major banks Market cap: A$1.9bn / $1.3bn Enterprise value: A$1.8bn / $1.3bn which currently still dominate the market with ~70% share, (3) 3m ADTV: A$6.4mn / $4.6mn Australia value-add services which TYR can offer as the only specialist Australia Small & Mid Cap M&A Rank: 2 payment provider with a banking license, such as Tyro Bank Leases incl. in net debt & EV?: Yes Account, and (4) broadening of its addressable market beyond its GS Forecast ________________________________ 6/20 6/21E 6/22E 6/23E current focus on hospitality, retail and health to include services and Revenue (A$ mn) 210.7 238.1 298.7 364.1 accommodation, along with its recently launched eCommerce EBITDA (A$ mn) (4.4) (4.2) 10.5 33.8 EPS (A$) (0.03) (0.03) (0.01) 0.03 solution for online payment acceptance. We expect these tailwinds P/E (X) NM NM NM 111.3 P/B (X) 8.7 10.8 11.0 10.0 to drive revenue growth over our forecast period at a CAGR of 20% Dividend yield (%) 0.0 0.0 0.0 0.0 (FY20-FY23E vs. 20% of FY17-FY20). Net debt/EBITDA (X) -- -- (10.1) (3.8) Frank/Imput (%) -- -- -- -- 2aeb9e8b174644998c7303f5a989d953 CROCI (%) 15.3 16.4 59.1 110.4 Valuation 12/19 6/20 12/20E 6/21E Our 12m TP A$3.20 is based on: 85% fundamental value (equal EPS (A$) (0.01) (0.02) (0.02) (0.02) weighted blend of DCF and EV/Gross Profit valuations with 20% GS Factor Profile ____________________________ Growth discount to peer FY21E EV/GP multiple of 15.8x applied to FY22E GP to reflect its relative revenue growth + operating margin profile) Financial Returns and 15% M&A value (peak historic 12m fwd EV/Sales multiple of Multiple 6.7x applied to FY22E sales). With our 12-m target price offering Integrated 14% downside vs 17% average upside in our coverage, we believe the shares fully price in TYR’s growth prospects, and we initiate with Percentile 20th 40th 60th 80th 100th a Neutral rating. TYR.AX relative to Australia & New Zealand Coverage TYR.AX relative to Australia Small & Mid Cap Source: Company data, Goldman Sachs Research estimates. See disclosures for details. Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S. Goldman Sachs Tyro Payments Ltd. (TYR.AX) Tyro Payments Ltd. (TYR.AX) Income Statement (A$ mn) _________________________________ Neutral Rating since Oct 7, 2020 Total revenue 6/20 210.7 6/21E 238.1 6/22E 298.7 6/23E 364.1 Cost of goods sold (117.2) (137.3) (174.2) (208.8) SG&A (30.2) (34.0) (38.0) (41.7) Ratios & Valuation _______________________________________ R&D -- -- -- -- 6/20 6/21E 6/22E 6/23E Other operating inc./(exp.) -- -- -- -- P/E (X) NM NM NM 111.3 EBITDA (4.4) (4.2) 10.5 33.8 P/B (X) 8.7 10.8 11.0 10.0 Depreciation & amortization (12.5) (12.7) (13.7) (15.1) FCF yield (%) 0.2 (0.1) 0.7 1.5 EBIT (16.9) (16.9) (3.1) 18.7 EV/EBITDAR (X) NM NM 166.3 51.2 Net interest inc./(exp.) (0.5) (0.5) (0.5) (0.5) EV/EBITDA (excl. leases) (X) NM NM 165.6 51.0 Income/(loss) from associates -- -- -- -- CROCI (%) 15.3 16.4 59.1 110.4 Pre-tax profit (17.4) (17.4) (3.7) 18.2 ROE (%) (8.8) (9.6) (2.2) 10.2 Provision for taxes 0.0 0.0 0.0 0.0 Net debt/equity (%) (54.7) (56.5) (63.1) (69.3) Minority interest -- -- -- -- Net debt/equity (excl. leases) (%) (58.6) (60.9) (67.5) (73.3) Preferred dividends -- -- -- -- Interest cover (X) (31.6) (31.5) (5.9) 35.0 Net inc. (pre-exceptionals) (17.4) (17.4) (3.7) 18.2 Days inventory outst, sales 0.1 0.1 0.1 0.1 Post-tax exceptionals (20.6) -- -- -- Receivable days 82.1 75.1 76.1 80.5 Net inc. (post-exceptionals) (38.1) (17.4) (3.7) 18.2 Days payable outstanding 48.3 29.3 27.6 28.4 EPS (basic, pre-except) (A$) (0.04) (0.03) (0.01) 0.04 DuPont ROE (%) (9.2) (10.1) (2.2) 9.7 EPS (diluted, pre-except) (A$) (0.03) (0.03) (0.01) 0.03 Turnover (X) 0.8 0.9 1.0 1.0 EPS (basic, post-except) (A$) (0.08) (0.03) (0.01) 0.04 Leverage (X) 1.4 1.6 1.8 1.9 EPS (diluted, post-except) (A$) (0.08) (0.03) (0.01) 0.03 Gross cash invested (ex cash) (A$) 115.5 61.4 45.8 39.0 DPS (A$) -- -- -- -- Average capital employed (A$) 80.6 80.4 68.6 59.8 Div. payout ratio (%) 0.0 0.0 0.0 0.0 BVPS (A$) 0.38 0.34 0.34 0.37 Balance Sheet (A$ mn) ___________________________________ Growth & Margins (%) ____________________________________ 6/20 6/21E 6/22E 6/23E 6/20 6/21E 6/22E 6/23E Cash & cash equivalents 103.8 97.4 106.4 129.4 Total revenue growth 11.0 13.0 25.5 21.9 Accounts receivable 43.4 54.5 70.1 90.5 EBITDA growth 28.8 3.5 349.3 221.3 Inventory 0.1 0.1 0.1 0.1 EPS growth NM 7.0 79.0 592.2 Other current assets 3.0 3.0 3.0 3.0 DPS growth NM NM NM NM Total current assets 150.3 155.0 179.7 223.1 EBIT margin (8.0) (7.1) (1.1) 5.1 Net PP&E 17.3 19.5 21.6 23.2 EBITDA margin (2.1) (1.8) 3.5 9.3 Net intangibles 5.4 8.4 11.5 14.8 Net income margin (8.3) (7.3) (1.2) 5.0 Total investments 69.8 69.8 69.8 69.8 Other long-term assets 21.1 22.4 25.3 27.4 Price Performance _______________________________________ Total assets 263.8 275.1 307.8 358.2 TYR.AX (A$) S&P/ASX 200 Accounts payable 10.3 11.7 14.6 17.9 Short-term debt -- -- -- -- 5 9,000 Short-term lease liabilities 4.7 4.7 4.7 4.7 4 8,000 Other current liabilities 54.9 82.2 115.7 144.6 Total current liabilities 69.9 98.5 135.0 167.1 3 7,000 Long-term debt -- -- -- -- 2 6,000 Long-term lease liabilities 2.8 2.8 2.8 2.8 1 5,000 Other long-term liabilities 1.4 1.4 1.4 1.4 Total long-term liabilities 4.2 4.2 4.2 4.2 0 4,000 Total liabilities 74.1 102.8 139.2 171.3 2aeb9e8b174644998c7303f5a989d953 Preferred shares -- -- -- -- Jan-20 Apr-20 Jul-20 Oct-20 Total common equity 189.7 172.3 168.6 186.8 3m 6m 12m Minority interest -- -- -- -- Absolute (4.6)% 28.5% -- Total liabilities & equity 263.8 275.1 307.8 358.2 Rel. to the S&P/ASX 200 (5.0)% 11.8% -- Net debt, adjusted (103.8) (97.4) (106.4) (129.4) Source: FactSet. Price as of 7 Oct 2020 close. Cash Flow (A$ mn) _______________________________________ 6/20 6/21E 6/22E 6/23E Net income (17.4) (17.4) (3.7) 18.2 D&A add-back 12.5 12.7 13.7 15.1 Minority interest add-back -- -- -- -- Net (inc)/dec working capital 2.2 (0.6) (1.4) (1.5) Other operating cash flow 20.9 21.7 24.2 16.0 Cash flow from operations 15.4 13.5 29.9 44.9 Capital expenditures (11.9) (15.0) (16.0) (17.1) Acquisitions -- -- -- -- Divestitures -- -- -- -- Others (42.4) -- -- -- Cash flow from investing (54.3) (15.0) (16.0) (17.1) Repayment of lease liabilities -- -- -- -- Dividends paid (common & pref) -- -- -- -- Inc/(dec) in debt -- -- -- -- Other financing cash flows 119.1 (4.8) (4.8) (4.8) Cash flow from financing 119.1 (4.8) (4.8) (4.8) Total cash flow 80.2 (6.4) 9.0 23.0 Free cash flow 3.4 (1.5) 13.8 27.8 Source: Company data, Goldman Sachs Research estimates. 7 October 2020 2 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Table of Contents Our thesis in 6 charts 4 PM Summary 5 Company overview and growth strategy 6 Value proposition to merchants 21 Competitive landscape 27 Financials 32 Valuation 38 Key risks 41 Appendix 1: The Australian card value chain 43 Appendix 2: M&A framework 48 Disclosure Appendix 52 2aeb9e8b174644998c7303f5a989d953 7 October 2020 3 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Our thesis in 6 charts Exhibit 1: The card payments market is large (A$676bn in FY20) and Exhibit 2: ...as card payments continue to take share from cash, a growing.... trend we anticipate will continue Card payment transaction value (A$bn) Percentage of transaction values by cash vs. debit/credit/charge cards $700 $6 $8 70% $1 61% $600 FY10-FY20 CAGR of 6.8% 60% 54% 53% $500 $319 $352 50% $289 44% 43% $260 $400 $239 $217 40% $198 $180 $162 38% $300 $144 30% $128 29% $200 20% $298 $310 $320 $328 $318 $254 $271 $285 18% 18% $222 $235 $245 10% $100 11% $0 0% 2007 2010 2013 2016 2019 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Debit/Credit/Charge cards Cash Credit cards Debit cards Prepaid cards Source: Reserve Bank of Australia (RBA) Source: Reserve Bank of Australia (RBA) Exhibit 3: TYR POS integrations lead the market, which together Exhibit 4: ...should continue to drive market share gains with its banking license and vertical specific features... Size of TYR’s addressable market (A$bn), TYR transaction volume Number of POS system integrations (as at 1 October 2019) processed (A$bn), Estimated share of addressable market (%) 300 286 $350 $336.4 30% 28% 250 $300 25% 200 $250 $209.5 20% $195.8 150 120+ $200 $183.0 $171.0 $171.0 17% 100+ $159.8 15% $149.4 15% 100 $150 50+ 13% 12% $93.4 10% 50 $100 10% 13 7 7 5 5 3 8% 0 7% $36.2 5% $50 $17.5 $20.1 $23.5 $29.5 $10.6 $13.4 $0 0% FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY30E Size of market (by transaction value) (A$bn) TYR Transaction value (A$bn) 2aeb9e8b174644998c7303f5a989d953 Implied market share (RHS) Source: Company data Source: Company data, Goldman Sachs Global Investment Research Exhibit 5: TYR’s relatively low GP Margins mean that its key value Exhibit 6: When adjusted for its lower margins, TYR currently driver will be Transaction Processing Volume growth... screens as fairly valued Peak Gross Profit and EBITDA Margins assumed in our forecasts FY22E EV/Gross Profit vs. Rule of 40 (Revenue growth + EBITDA Margin) 90% 35 MP1.AX 80% 30 70% APT.AX FY22 EV/GP, Jun Y/E 25 60% SQ 50% 20 XRO.AX 40% TYR.AX PYPL WTC.AX 15 30% PPH.NZ 10 NEA.AX APX.AX 20% TPW.AX EML.AX 10% 5 RBL.AX 32% 13% 39% 15% 44% 24% 60% 45% 62% 47% 70% 42% 88% 55% 0% 0 TPW RBL TYR APT PPH MP1 NEA 0% 10% 20% 30% 40% 50% 60% 70% Peak GP Margins Peak EBITDA Margins FY22 Rule of 40, Jun Y/E Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research 7 October 2020 4 Goldman Sachs Tyro Payments Ltd. (TYR.AX) PM Summary We initiate on TYR with a Neutral rating. Our 12m TP of A$3.20 implies -13% downside. The investment case for TYR is driven by the following factors: n Large and growing addressable market as payments continue to digitise: TYR’s addressable market is the Australian card payments market which was A$676bn in size in FY20. This has grown at a 6.8% CAGR from FY10 to FY20 (3.3% yoy growth in FY20 with COVID-19 impact). The digitisation of the economy will, in our view, drive card payments market growth of 7% p.a. over our forecast period through FY23E. n Current market penetration remains low: TYR is focused on SME merchants in the health, hospitality & retail segments, and is targeting the services segment as a new vertical. In FY20, TYR processed A$20.1bn in transaction volumes, implying c. 12% market share of these segments. Overall market growth plus market share gains drive our forecast TYR transaction value CAGR of +17% over FY20-30E. n Drivers of market share growth will, in our view, be: o Extensive point of sale integrations: As at its FY20 result, TYR had 306 POS integrations significantly exceeding those of its competitors. o Australian Deposit-taking Institution (ADI) license: TYR is the only specialist merchant acquirer in Australia which holds an ADI, allowing it to offer value adding banking products (transaction accounts, term deposits, business lending) and facilitate faster settlement speed than non-bank peers (same day with a Tyro bank account vs. next business day or later). o Deepening capability within its verticals with specific features: Within its target retail verticals of health, hospitality and retail, TYR has developed vertical specific features. Examples include ‘Pay@Table’ and split bills for 2aeb9e8b174644998c7303f5a989d953 restaurants. TYR has made an investment in me&u (food ordering and payment via an app in restaurant, part of Tyro Connect) and we see potential for it to further expand capability through M&A in the future. o Move towards unified commerce: TYR has historically been an in-store payment solution provider but has recently launched an eCommerce solution which could further expand its addressable market. o Improving brand recognition: In FY20 TYR had prompted brand awareness of 14%, up from 12% in 1H20 and 10% in FY19. We expect TYR to continue to invest in sales and marketing (marketing expense as a percentage of revenues to rise from 2.7% in FY20 to 3.2% in FY23E). n Valuation: Our 12m TP of A$3.20 is based on: 85% fundamental value (equal weighted blend of DCF and EV/GP (20% discount to peer FY21E EV/GP multiple of 15.8x applied to FY22E GP) and 15% M&A value (peak historic 12m fwd EV/sales multiple of 6.7x applied to FY22E sales). For fundamental value, we use DCF to reflect long dated growth opportunity and EV/GP to benchmark versus peers reflecting TYR’s lower revenue growth + operating margin profile relative to peers. 7 October 2020 5 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Company overview and growth strategy TYR is an Australian financial services company which primarily provides payment services as a merchant acquirer, along with offering a range of complementary business banking products. A merchant acquirer provides merchants with the services required to accept electronic payments. This typically occurs through the provision of acceptance facilities such as a terminal (at point of sale) or online gateway (at the online checkout of the merchant). The merchant acquirer is responsible for routing the transaction to the relevant scheme network (such as Visa or Mastercard) which in turn seeks authorisation for the payment request from the bank that issued the card. The merchant acquirer is responsible for transferring funds to the merchant’s nominated settlement bank. In addition, the merchant acquirer is responsible for conducting due diligence on merchants to mitigate counterparty and fraud risk. For a more complete discussion on the card payment ecosystem, please refer to ‘The Australian card value chain’ in Appendix 1. The structural tailwind that is likely to continue to benefit TYR (and other merchant acquirers) is that the Australian payments landscape is continuing to shift away from cash towards debit and credit/ charge card use. As we show in Exhibit 7 and Exhibit 8, card transaction volumes (debit and credit & charge cards) as a percentage of transactions have risen from 31% in 2010 to 63% in 2019 while cards as a percentage of transaction values have risen from 43% in 2010 to 61% in 2019. Exhibit 7: Card payments are now the main payment method by Exhibit 8: ... and value of transactions number of transactions ... % of value of payments by payment method % of number of payments by payment method 80% 40% 38% Debit cards 36% 69% Cash 70% 35% 62% Cash 31% 2aeb9e8b174644998c7303f5a989d953 29% Debit cards 60% 30% 28% Credit and 25% 50% 47% charge cards 25% 23% 27% Credit and 44% 22% 26% charge cards BPAY 40% 37% 20% BPAY 21% 18% 18% 16% Internet/ 30% 27% 30% 24% phone banking 15% 14% Internet/ 22% PayPal 11% phone banking 20% 15% 10% 22% PayPal 19% 19% Cheque 10% 5% 11% 9% Cheque Other 0% 0% 2007 2010 2013 2016 2019 2007 2010 2013 2016 2019 Source: Reserve Bank of Australia (RBA) Source: Reserve Bank of Australia (RBA) We expect this structural trend of Australia migrating to an increasingly electronic transaction-led economy is unlikely to change course. Company history The company was founded in 2003, received an Australian specialist credit card institution license in 2005 and an Australian banking license in 2015 (at the time it was the first new domestic banking licensee in over 10 years). It listed on the ASX in December 2019. 7 October 2020 6 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 9: TYR company history Merchants (#) at 30 Jun Transaction value at 30 Jun 2003 Company founded as MoneySwitch 2005 Is the first technology company to obtain an Australian specialist credit card institution licence 2006 First transaction in production made 2007 Internet-based or ’cloud’ integrated payments solution launched 145 $0.006bn 2009 Is the first to launch integrated Medicare Easyclaim rebates on a terminal 1,431 $0.511bn 2010 Launched non-stop ’live-live’ acquiring 2,991 $1.3bn 2011 Integrated mobile terminal payment solution launched 4,520 $2.0bn 2015 Became first new domestic banking licensee in over 10 years Raised A$100mn equity 13,032 $6.8bn Tyro Bank Account launched 2016 Development of Tyro Business Loan completed and soft launched 15,565 $8.6bn 2018 First Australian bank to launch least-cost routing and an integrated Alipay 23,245 $13.4bn solution 2019 Rebranded with new logo 29,031 $17.5bn Listed on ASX (Dec) 2020 Established services vertical 32,176* $20.1bn Term deposit product launched * Excludes 3,250 merchants who were inactive due to COVID-19 at 30 Jun 2020 Source: Company data TYR is the fifth largest merchant acquirer in Australia by number of terminals in the market, after the 4 major banks (refer Exhibit 10). The company primarily operates in the ‘card present’ segment of the market, and has recently improved its ‘card-not-present’ offering through launching eCommerce and in app solutions. This is important as a key trend in Australian card payments is the growth of card not present (eCommerce, telephone order, mail order) as a percentage of the total value processed (refer Exhibit 11). Exhibit 10: TYR is the 5th largest merchant acquirer by terminals Exhibit 11: ‘Card not present’ is growing strongly Number of EFTPOS terminals by AusPayNet member as at 30 June Transaction value acquired, card present vs. card not present 300,000 100% 90% 20% 19% 20% 21% 21% 21% 24% 250,000 25% 27% 32% 33% 80% 200,000 70% 150,000 60% 50% 100,000 2aeb9e8b174644998c7303f5a989d953 40% 80% 81% 80% 79% 79% 79% 76% 75% 73% 50,000 68% 67% 30% 0 20% 10% 0% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Jun-17 Jun-18 Jun-19 Card present Card not present Note: Citi now operated by Wirecard, BOQ now operated by First Data Card-present: card/ mobile phone/ payment device physically interacts with an acceptance device, e.g. payment terminal Card-not-present: card details are accepted remotely, e.g. ecommerce/ telephone order/ mail order Source: APRA Source: Reserve Bank of Australia (RBA) Exhibit 12 shows that as TYR has continued to broaden its merchant network, the value of transactions processed by its platform has also risen strongly (Exhibit 13). Since 2014, its merchant network has grown at a 6 year CAGR of 21% and transaction values it has processed at 25%, despite the impact of COVID-19 in FY20. There were 32,176 active merchants as at 30 June 2020 (we note that this figure excludes 3,250 merchants which were inactive due to COVID-19 during the month of June and may return as COVID-19 related restrictions subside). 7 October 2020 7 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 12: TYR has achieved steady growth in merchant numbers Exhibit 13: ... driving steady growth in transaction value processed ... Transaction value, year ended 30 June (A$bn) Number of merchants at 30 June 60,000 $40 $36.2 $35 50,000 $29.5 $30 40,000 $25 $23.5 $20.1 $20 $17.5 30,000 $15 $13.4 $10.6 20,000 $10 $8.6 $6.8 $5.3 $5 $2.0 10,000 $0.0 $0.5 $1.3 $0 0 Note: 30 Jun 2020 excludes 3,250 merchants who were inactive due to COVID-19 Source: Company data Source: Company data Key features of TYR’s payment offering TYR provides merchants with terminals that have been programmed with TYR’s proprietary software. TYR sources all of its terminal hardware from (Atos) Worldline (WLN.PA, covered by Mohammed Moawalla), a contract which runs on a rolling annual basis, and either party may terminate the relationship with at least 90 days notice before the end of each rolling 12m period. In addition, WLN can change its prices at any time within 30 days notice. Core features of TYR’s payment offering are set out in Exhibit 14. 2aeb9e8b174644998c7303f5a989d953 7 October 2020 8 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 14: Core features of TYR’s payment offering Core features Countertop and TYR offers merchants a choice of 2 terminal types: mobile terminals - Countertop terminal: connects to the internet via an Ethernet cable - Wireless mobile terminal: connects to the internet via Wi-Fi or 3G Both terminal types have the following features: can connect to multiple instances of a POS system in a merchants premises, includes a built in thermal printer, and 3G backup cards which merchants can switch to if there is a disruption to their internet connection. High availability Availability of core acquiring platform was 99.99% in FY20 TYR operates two active-active data centres to support availability. Multiple POS system TYR is able to integrate directly with Windows, Android and iOS-based POS systems. As at 1H20, it reported to have integrations integrations with 306 POS systems. Multiple payment TYR enables acceptance of the following schemes: Visa, Mastercard, eftpos, American Express, Diners Card, JCB, and UnionPay methods International, and the following digital wallets: Apple Pay, Google Pay, and Samsung Pay TYR has also launched an Alipay solution, and is planning a ZipPay integration. Multiple pricing TYR currently offers fixed margin (cost-plus), and variable margin (simple, blended and normalised) pricing structures. options TYR calculate the merchant service fee on a transactional basis, and merchants are direct debited on a monthly basis for the total fee incurred in the month. Settlement If a merchant has a Tyro Bank Account, then they can choose to set the cut of time for their trading days to as late as 5.00am the following day. Transactions are typically settled in a merchants chosen Australian bank account within 2 business days. Merchants which have Tyro Bank Account usually receive funds on a daily basis (incl. weekends and public holidays). Dynamic reporting Merchant portal - The merchant portal is available to all merchants at no incremental cost. As at 30 Sep 2019, there were c. 7,250 monthly active users of the Merchant Portal - The merchant portal includes a range of data and reporting tools: terminal usage, transaction value by terminal, charges and fees, transaction types, and historical records. Can be accessed in near real time and data can be downloaded or directly integrated (via reporting API) into other business systems (e.g. accounting software) - Has varied permission levels Tyro App - iOS and Android available - Tyro Bank Account: can view balances, make transfers, approve scheduled bills in-app - Tyro Business Loan: can check eligibility and apply in-app - As of 30 Sep 2019, there were c. 7,500 monthly active users of the Tyro app 24/7 Australia-based 24/7 phone based customer service, support team located in Sydney office. customer support Source: Company data Breadth of accepted payment methods Based on the payment methods listed on the Tyro website, TYR currently facilitates acceptance of: n International schemes: Visa, Mastercard, American Express, Diners Club 2aeb9e8b174644998c7303f5a989d953 International, UnionPay, JCB n Australian schemes: eftpos n Digital wallets: Apple Pay, Google Pay, Samsung Pay TYR entered an agreement with Alipay in August 2018, making it the first Australian bank to offer merchants fully integrated Alipay acceptance; the solution was launched in October 2018 and is now available to 31,910 merchants. The solution allows integrated and standalone merchants to present a Quick Response code on the display of the terminal, which consumers can scan using the Alipay app. In 1H20 TYR processed A$16.7mn in Alipay transaction value, which declined to A$7.4mn in 2H20 (A$2.4mn since March 2020) as the closure of Australia’s borders impacted used of this payment option. According to the company, it entered into an agreement with Zip Co. (Z1P.AX, Not Covered) in May 2019, and will be developing an integration for merchants to provide Zip Pay in-store via their terminals. A date for launch has not been provided. 7 October 2020 9 Goldman Sachs Tyro Payments Ltd. (TYR.AX) In addition, TYR provides integrated health claiming capabilities for both private health insurance claiming (DXC HealthPoint) and public health claiming (Medicare Easyclaim). This functionality allows health practitioners to process claims via the Tyro terminal on behalf of their patients. As at 22 Oct 2019, the financial institutions listed on the Services Australia website as providing Medicare Easyclaim were: ANZ, CBA, NAB, TYR, SUN. Medicare Easyclaim is a contract awarded by the Department of Health Services (DHS). On 11 Dec 2019, TYR announced that it had been successful in its tender for the ongoing provision of this service; the previous contract had been due to expire on 31 Dec 2019. The key difference with the new contract is that previously DHS had paid TYR a fixed fee per transaction but this fee has been removed under the new contract. Target merchant cohorts TYR is focused on servicing SME merchants in the health, hospitality and retail verticals, and established a new services vertical in FY20. Within these verticals, hospitality and retail generated 78% of FY20 transaction value (Exhibit 15). In terms of customer concentration, although TYR has over 32k merchants (FY20) it indicated that based on FY19 numbers, 16% of transaction value is generated by just 251 of its largest merchants (or less than 1% of the total merchant base), suggesting that its largest customers are generating significant transaction volume for TYR. Indeed, TYR’s top 20 merchants generated c. 8.8% of payments gross profit in FY19, and have an average tenure of c. 7 years. Exhibit 15: Hospitality and retail generate the majority of Exhibit 16: Large exposure to a small number of merchants transaction value Merchant count and annual transaction value (A$bn) by merchant Merchant count and annual transaction value (A$bn) by vertical, 30 category, 30 June 2019 June 2020 1% 251 2aeb9e8b174644998c7303f5a989d953 Merchant 26% 31% 26% 17% Merchant 22% 77% count 8,433 9,855 8,518 5,370 count 6,499 22,281 1% $0.2bn Transaction 12% 42% 36% 10% value A$2.5bn A$8.4bn A$7.3bn A$2.0bn Transaction 83% 16% value $14.5bn $2.8bn 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Health Hospitality Retail Services Micro (less than $50k) SME ($50k to $5mn) Large (more than $5mn+) Source: Company data Source: Company data Merchant acquisition strategy In FY19, TYR’s largest source of merchant applications was digital marketing at 49% of leads, followed by referrals from Point of Sale system referrals. TYR has disclosed that based on its own surveys it currently has low brand awareness, with prompted brand awareness of 10% and unprompted brand awareness of 4% as at 30 June 2019. Positively, this improved to prompted brand awareness of 12% as at the 1H20 result, and 14% as at the FY20 result. We forecast TYR to continue to invest more heavily in 7 October 2020 10 Goldman Sachs Tyro Payments Ltd. (TYR.AX) marketing and promotion of its brand over our forecast period (discussed later in ‘Financials’ section). Exhibit 17: Digital marketing is TYR’s largest source of leads Exhibit 18: Tyro Active Partner Program FY19 merchant applications by lead source Other channels 22% Merchant POS Tyro’s POS •Engages partner sales team partner with a Tyro •Passes •Converts •Earns fees Corporate POS warm lead the for business partner to Tyro’s merchant converted development Digital marketing sales team referrals 5% 49% Above-the-line marketing 6% Independent Sales Organisations 7% Point of Sale system referrals 11% Source: Company data Source: Company data n Digital marketing: This channel includes paid search, programmatic, display and social media campaigns, leads from which TYR utilises its own phone-based sales team to convert. It is worth noting that almost half of TYRs digital marketing leads are generated by Google and Facebook implying that almost a quarter of its total leads come from these two counterparties. Given that Google and Facebook regularly change their algorithm/ranking methodologies, we highlight future changes could present an inherent risk for TYR due to its reliance on these channels. n Point of Sale system referrals: TYR introduced the Tyro Activate Partner Program (TAPP) in 2017, which is a tiered reward program based on successful merchant referrals for POS system partners (see Exhibit 18). When the phone based sales team is successful in converting a merchant, the referring POS system partner is compensated with integration and support fees that may take the form of upfront 2aeb9e8b174644998c7303f5a989d953 fees and potentially, depending on the POS partner’s TAPP tier, an ongoing share of the merchant acquiring fee from the referred merchant. The TAPP also includes non-financial incentives such as training, marketing and reporting. n Independent sales organisations: TYR authorises third parties known as Independent Sales Organisations (ISOs) to source and sign up new merchants. ISOs are typically compensated through receiving a percentage of the merchant acquiring fee generated by merchants they source. n Above the line-marketing: The company is increasing its investment in marketing including radio, national newspapers and television. We forecast marketing to increase from 2.7% of revenue in FY20 to 3.3% in FY23E, as TYR continues to invest in building brand awareness across its target markets. n Corporate business development: The corporate business development team is focused on strategic merchants which typically have higher transaction values. n Other channels include merchant referrals, employee referrals, other third party referrals (e.g. Deliveroo), industry events and trade shows, and a field sales team launched in 2018. 7 October 2020 11 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Merchant retention In recent years, transaction value churn, i.e. percentage of transaction value lost from lost or dormant merchants, has generally been on an improving trend for TYR (Exhibit 19). However, between FY17 and FY18 TYR experienced an increase from 8.8% in FY17 to 10.6% in FY18 which it attributed partially to the loss of a single large merchant. This improved to 9.3% in FY19 and 8.0% in FY20 (FY20 calculation excludes the 3,250 merchants which were inactive at 30 Jun 2020 due to COVID-19). TYR’s Net Promoter Score (NPS) improved from 37 in FY19 to 43 in FY20. TYR has also presented churn by merchant numbers, i.e. percentage of merchants lost from lost or dormant merchants. As shown in Exhibit 20, FY20 merchant churn was 11.7% in line with FY19 (FY20 calculation excludes the 3,250 merchants which were inactive at 30 Jun 2020 due to COVID-19). As businesses are more likely to close the smaller their annual turnover is, we would expect merchant churn to typically be higher than transaction value churn. We note that TYR is focused on the SME market which had 13% churn by number of businesses in FY19 according to ABS statistics. Exhibit 19: Churn has improved since FY18 Exhibit 20: By merchant numbers, TYR’s churn is broadly in line Transaction value churn - % of transaction value lost from lost or with the industry average dormant merchants Merchant churn (percentage of merchants lost from lost or dormant merchants in period) 12% 14% 13.0% 10.6% 11.7% 11.7% 12% 10% 9.3% 8.8% 8.0% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% 2aeb9e8b174644998c7303f5a989d953 FY17 FY18 FY19 FY20 FY19 FY20 SME industry churn (FY19) Source: Company data Source: Company data TYR’s ecommerce solution Mastercard Payment Gateway Services TYR launched its ecommerce solution in March 2019, enabling it to access the online opportunity for the first time. TYR utilises the Mastercard Payment Gateway Services (MPGS) platform, allowing merchants to accept online payments including in-app payments. MPGS is a white label technology solution providing fraud prevention and payment processing. As this is the most significant part of TYR’s software set which was not internally developed (internally owned), we would expect that in time TYR could build its own ecommerce solution which is not reliant upon 3rd party technology. TYR’s ecommerce offering can be used with a hosted payments page, multiple compatible shopping carts or via direct integration with a Mastercard Payment Gateway Services API. TYR’s solution integrates with 11 shopping carts: Drupal, Joomla - VirtueMart, Magento, NopCommerce, OpenCart, osCommerce, PrestaShop, Shopify, 7 October 2020 12 Goldman Sachs Tyro Payments Ltd. (TYR.AX) WooCommerce, WP eCommerce, and X-Cart. Other key features include: multiple payment methods including virtual terminal, card on file information, recurring payments and eInvoicing; single settlement and reporting across a merchant’s card not present and card present transactions; 24/7 local customer support; and the ability for merchants to monitor transactions in real time and access payment details via either the Tyro App, Tyro Portal or Tyro eCommerce Portal. The agreement with Mastercard is for 60 months (until March 2024), and then renews annually on an automatic basis unless either party terminates it. TYR pays Mastercard a fee for the use of this service. In 1H20 TYR processed A$3.1mn in eCommerce transaction value and as at the 1H20 result there were 41 merchants using the solution actively. TYR fast-tracked access to its eCommerce solution in response to COVID-19, and as at 30 Jun 2020 had 384 merchants activated (c. 1% of merchant base). eCommerce transaction value in 2H20 was A$7.5mn, and in June 2020 was A$2.0mn indicating an accelerating trend through the period albeit still a very early stage but large potential opportunity. Competitiveness of TYR’s solution We note that ANZ and CBA indicate on their websites that they also utilise a white labeled version of Mastercard Internet Gateway Services; we have not been able to confirm the solution used by NAB and WBC. As such, we view TYR’s offering as comparable to the big 4 banks. As we discuss in more detail in the ‘Competitive landscape’ section, there are a number of digitally native payment processors operating in Australia utilizing their own technology. For the most part, these digitally native providers do not currently have a meaningful in-store presence in Australia. With TYR having a well-established in-store position, we believe its offer of a single unified solution will be attractive to a cohort of merchants wishing to operate off and online but highlight it faces very strong 2aeb9e8b174644998c7303f5a989d953 competition online. 7 October 2020 13 Goldman Sachs Tyro Payments Ltd. (TYR.AX) TYR’s revenue model TYR has two revenue streams: (1) Payments, and (2) Banking Products. As Exhibit 22 and Exhibit 21 show, Payments generates the vast majority of TYR’s revenues and that within Payments, Merchant Service Fees are the dominant source of revenues. Exhibit 21: Payments accounts for almost all of TYR’s Group Exhibit 22: ...and within Payments, Merchant Service Fees are its revenues... key source of revenue TYR revenue by segment (A$mn, FY20) Payments segment revenue by type (A$mn, FY20) Investments Other fee income Terminal Loan related income Other revenue and Terminal rental $3.9 accessories sales revenue $1.8 income income 2% $1.1 $1.8 1% $4.2 $17.7 0% 1% 2% 9% Total payments Merchant service revenue & income fees (A$mn) $180.2 $202.8 89% 96% Source: Company data Source: Company data 1. Payments (96% of FY20 Group Revenue) TYR receives fees from merchants for the provision of merchant acquiring services (i.e. authorisation, clearing and settlement). These fees typically include the following: n Merchant Service Fee (MSF): this is the main fee paid by a merchant to its merchant acquirer, and is usually calculated either as a percentage of transaction value, or as a fixed amount per transaction. According to the RBA, the total value of merchant fees on card payments in the Australian market in 2018/19 was A$4.3bn. This fee is made up of the following components: 2aeb9e8b174644998c7303f5a989d953 o Interchange fee: fee charged to the merchant acquirer by an issuer for issuing the card and processing; this is a direct expense to TYR. The RBA sets limits on the interchange fees schemes can set, depending on the card type, interaction method and merchant category. This is usually the largest component of the MSF. o Scheme fees: combination of fees charged to the issuer and merchant acquirer by the schemes; is a direct expense to TYR. Fees are either calculated on transaction value/ volume, or are a fixed fee; the fees usually relate to the total value or number of transactions that the merchant acquirer processes in a given period, along with other fees including registration fees. o Merchant Acquiring Fee: this is the balance of the MSF after interchange and scheme fees have been deducted, and is retained by the merchant acquirer. The merchant acquiring fee is the revenue retained by TYR. n Other transaction fees: There are other fees charged by the merchant acquirer for services such as dynamic currency conversion, and mail order/ telephone order transactions. TYR earns a fixed fee per transaction for private health insurance 7 October 2020 14 Goldman Sachs Tyro Payments Ltd. (TYR.AX) claims and Medicare Easyclaim. n Terminal fee: periodic fee charged to the merchant by the merchant acquirer for the rental of terminals; this typically does not have a lock in term. Alternatively, terminals are sometimes bought outright, or bundled into the MSF on a per transaction basis. TYR also sells a number of terminal accessories to merchants outright, including mounts for counter-tops, terminal car chargers, paper receipt rolls, and spare batteries. TYR charges monthly terminal rental fees of A$29 for the counter top terminal, and A$39 for the mobile terminal, excluding GST. Exhibit 23 sets out the flow of these different fees between the ecosystem participants, and how it flows through TYR’s P&L. Exhibit 23: TYR’s Gross Profits are made up of its Merchant Service Fee less payments to Schemes (scheme fees) and Issuers (interchange fee) Illustration of TYR’s revenues and direct expenses Cardholder Merchant Acquirer Schemes Issuers Purchase TYRO TYRO Payments revenue Payments gross Transaction value Merchant Service Fee Scheme fee and income Combination of fees profit - typically calculated as a % of transaction value, charged by the schemes to or fixed amount per the merchant acquirer and transaction. issuer. Other revenue streams Interchange fee - includes terminal Fee issuer charges a merchant acquirer for issuing the card and rental, FX conversions processing. TYRO Payments direct expenses Source: Company data There are five main pricing structures for the MSF, which are set out in Exhibit 24. TYR 2aeb9e8b174644998c7303f5a989d953 currently offers: cost-plus, simple, blended and normalised MSF structures. Exhibit 24: Merchant service fee pricing structures Cost-plus Fixed merchant acquiring fee is charged on top of the interchange/ interchange + scheme fees A single MSF is charged on all eligible transactions irrespective of the transaction’s circumstances (card type, amount or interaction Simple type) Each scheme is priced individually: ((interchange + scheme fee for that scheme) + merchant acquiring fee). The aggregate of these Blended individually priced fees is the total MSF The merchant acquirer categories card types, sometimes within schemes, across all eligible card types and schemes. These categories Normalised are individually priced based on the interchange and scheme fees of the particular category. Merchant acquiring fee is then added. The merchant selects in advanced a fixed monthly fee that includes a particular threshold of total value and/ or number of transactions Fixed plan per month. The merchant incurs additional fees once this threshold is passed. Source: Company data TYR usually does not contract with merchants for a fixed period. Instead, merchants can typically terminate their arrangement with TYR, and TYR can change pricing, with 30 days notice. 7 October 2020 15 Goldman Sachs Tyro Payments Ltd. (TYR.AX) 2. Banking Products for Business In August 2015 TYR was granted an Australian Banking License (Authorised Deposit-taking Institution license). The company subsequently launched the Tyro Bank Account and the Tyro Business Loan in October 2015 and July 2016 respectively, which are still in the build out phase. TYR launched a term deposit pilot on 10 Dec 2019 which was made available as a general release on 1 July 2020 to all eligible merchants. Tyro Bank Account Since its launch in late 2015, merchants that have taken out a payment facility with TYR have also usually received a Tyro Bank Account. This is a fee-free (no account keeping fees, transaction fees, or penalties for accessing funds), interest-bearing (interest rate increases the longer the funds are held in the account, capped rate after 90 days) transaction account. A Tyro Bank Account is required in order to access Tyro Business Loans. The Tyro Bank Account can be linked to Xero accounting software, facilitating batch payments, bank feed reconciliation and approval of bill and payroll payments. Merchants are able to manage the Tyro Bank Account through the Tyro app. Exhibit 25: The Tyro app has now been downloaded... Exhibit 26: ... over 21k times Monthly downloads of Tyro app (iOS & Android) Cumulative downloads of Tyro app (iOS & Android) 900 25,000 800 700 20,000 600 15,000 500 400 10,000 300 200 5,000 100 0 0 2aeb9e8b174644998c7303f5a989d953 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-16 Mar-16 Jul-16 Jan-17 Jul-17 Jan-18 Nov-16 Mar-17 Nov-17 Mar-18 May-18 Jul-18 Jan-19 Nov-18 Mar-19 Jul-19 Jan-20 Jul-20 Nov-19 Mar-20 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18 Mar-19 Sep-19 Mar-20 Sep-20 May-16 Sep-16 May-17 Sep-17 Sep-18 May-19 Sep-19 May-20 Sep-20 May-16 May-17 May-18 May-19 May-20 Nov-16 Nov-17 Nov-18 Source: Sensor Tower Nov-19 Source: Sensor Tower Tyro Business Loan The Tyro Business Loan is an unsecured merchant cash advance. It is available to TYR merchants who meet credit and product criteria and provide a personal guarantee. The merchant cash advance is intended to help merchants finance working capital and investment needs. The eligibility assessment process is automated, with the key data points considered including: historic value of transactions processed with TYR, ABN validity, company director credit scores, and standard adverse reporting research. Manual review may occur if automated eligibility criteria are not met. Merchants can access these loans through the Tyro App; in the app merchants can check their eligibility and complete the process to obtain a loan which is deposited directly into their Tyro Bank Account within 60 seconds. The amount that can be 7 October 2020 16 Goldman Sachs Tyro Payments Ltd. (TYR.AX) borrowed is determined by the merchants annual transaction value with TYR, and is capped at the lower of 10% of that amount or A$100,000 for the first loan and $120,000 for subsequent loans. Merchants can only have one loan outstanding at any point in time. At the time that they take out the loan, merchants select an amount typically between 10-30% of daily card transaction value which will be repaid daily. Repayments occur daily and are deducted from the settlements payable to the merchant, which in effect puts TYR ‘first in line’ for loan repayments. TYR charges a fixed loan fee calculated at the time the loan is taken out which is based on the size of the loan and the expected repayment term of the loan; in FY20 the average loan fee was 7.0% of the average loan size. TYR does not charge early repayment, late repayment, or any other interest or fees. In FY20 the average loan size was A$32,200, and the average loan tenure in 1H20 was 4.7 months. In Exhibit 27 and Exhibit 28 we set out the example mechanics of a Tyro Business loan. In this example, the merchant takes out a A$1,000 principal loan, with a A$100 fee, giving a total amount to be repaid of A$1,100. On day 1, the merchant processes A$400 in merchant transaction value through Tyro. The merchant has elected to repay 20% of their daily transaction value, so A$80 of the daily takings are repaid to Tyro. This continues each day the merchant has card sales, until Day ‘n’ when the loan is repaid. Exhibit 27: Example mechanics of a Tyro Business Loan: loan Exhibit 28: Example economics of a Tyro Business Loan: repayment profile profile $1,000 principal with $100 fee, repaying 20% daily transaction value $1,000 principal with $100 fee, repaying 20% daily transaction value $700 Repayments linked to 20% $100 $80 No merchant’s daily $600 $140 repayment by transaction value over merchant $140 $500 life of the loan 20% $80 $100 $400 20% 20% $80 $80 $300 80% $560 80% $1,000 $200 80% 80% $400 2aeb9e8b174644998c7303f5a989d953 $320 $320 $100 $0 - Day 1 Day 2 Day 3 Day 4 … Day ’n’ (final repayment) $100 $400 $0 merchant $700 $400 … $500 Tyro Day 1 Day 2 Day 3 Day 4 … Day ’n’ (final merchant transaction merchant merchant merchant Business repayment) transaction value transaction transaction transaction Loan value value value value Source: Company data Source: Company data COVID-19 & Tyro Business Loans TYR generated A$60.1mn in loan originations in FY20, comprised of A$58.5mn up to 31 March 2020 and A$1.6mn in 4Q20. Following the onset of COVID-19, TYR moved to manual assessment resulting in this significant reduction in originations and granted 380 loan repayment holidays during the period from 1 Mar to 30 Jun. TYR has stated it will revert to the higher limit automated assessment process once the impact of COVID-19 reduces. We note that TYR is a participant in the Australian Government’s Coronavirus SME Guarantee Scheme, and has issued the Tyro Business Loan to existing Tyro merchants under the scheme since 12 May 2020. The structure of the loan under the Scheme is 7 October 2020 17 Goldman Sachs Tyro Payments Ltd. (TYR.AX) very similar to the usual Tyro Business Loan, except there is an initial Repayment Holiday Period of 6 months (interest accrues on the loan during this period). Only A$0.7mn in new Tyro Business Loans have been taken up by merchants under this scheme. Revenue model of banking products TYR earns interest from the provision of merchant cash advances, i.e. the Tyro Business loan, just like a normal business loan albeit with a repayment structure that is based on a fixed fee at the start of the loan which is then repaid based on a pre-agreed percentage of the merchant’s turnover. TYR’s in-house technology capability TYR develops and maintains the majority of the systems required to be a merchant acquirer in-house, giving it full control over the provision of an end-to-end solution. This minimal reliance on third party systems assists TYR to achieve high transaction authorisation speeds; average processing time in FY20 was <1.5 seconds per transaction. Having ownership of the core technology and systems also assists TYR when bringing new products to market, and also allows TYR to more easily integrate with other systems and services. As at 30 June 2020, TYR had 240 tech employees, equivalent to just over half of its total headcount (refer Exhibit 29). Exhibit 29: Over half of staff are in technology Headcount 30 June 2020 by function 53% 38% 5% 9% 240 170 24 42 2aeb9e8b174644998c7303f5a989d953 Technologists Customer Risk and compliance Corporate Source: Company data 7 October 2020 18 Goldman Sachs Tyro Payments Ltd. (TYR.AX) TYR’s growth strategy TYR has outlined 7 key growth drivers it is focused on: 1. Grow merchant share in existing core verticals TYR is focused on growing its share in its existing core verticals of health, hospitality and retail, where it had 26.8k active merchants as at 30 June 2020, c. 9% of total SME merchants in these verticals (312k as at 30 June 2018). The company plans to achieve this through increased marketing, further POS integrations, adding more payment methods, and developing additional industry-specific solutions. Given that these strategies have been successful in increasing TYR’s overall merchant count from c. 3,000 at 30 June 2010 to 32,176 as at 30 Jun 2020 we expect TYR to continue gaining share in these verticals. 2. Add new core verticals In its prospectus (listed in Dec 2019), TYR indicated that it intends to expand further into 2 new core verticals, services and accommodation, which the company estimates incorporates c. 700,000 merchants but has not provided any indication of size by transaction value. To do so, TYR plans to largely replicate its approach in existing core verticals, intending to develop specialised solutions and expand its terminal offering. TYR established the new services vertical in FY20, and as at 30 Jun 2020 had 5,370 merchants in this vertical, up from 3,862 as at 30 Jun 2019. As shown in Exhibit 15, services comprised 17% of merchant count and 10% of merchant transaction value in FY20. TYR is currently in the process of piloting a new mobile terminal intended to meet the needs of the services and other verticals. As a result of the disruption COVID-19 has caused to the tourism and travel sectors, we expect accommodation to be a medium-term driver. 2aeb9e8b174644998c7303f5a989d953 3. Drive expansion into eCommerce and other payment types As previously discussed, one growth opportunity for TYR is expanding into online commerce. As we showed in Exhibit 11, card-not-present continues to grow strongly as a result of online commerce continuing to take share across many industries. See above for more discussion of TYR’s ecommerce offering. In addition, as we will discuss in ‘Value proposition to merchants’, TYR continues to expand the various payment types it accepts (international schemes, domestic schemes and digital wallets). 4. Cross-sell and drive expansion in lending and other value-adding services In August 2015, TYR was granted an Australian Banking License (Authorised Deposit-taking Institution license). The company subsequently launched the Tyro Bank Account and the Tyro Business Loan in October 2015 and July 2016 respectively, which are still in early stage of scaling. TYR also launched a term deposit pilot on 10 Dec 2019, which on 1 July 2020 was generally released to eligible merchants. Over time, we expect that these value added services will provide a point of differentiation against non-ADI licensed competitors helping to drive merchant growth. 7 October 2020 19 Goldman Sachs Tyro Payments Ltd. (TYR.AX) 5. Launch Tyro Connect TYR launched an API-based integration platform called Tyro Connect in FY20, which will be distinct from its merchant acquiring operations. Tyro Connect is a ‘plug and play’ integration hub for POS systems and customer-facing apps, e.g. food delivery, loyalty, order ahead of time, table bookings etc. TYR intends to offer Tyro Connect to existing customers (as a means of further embedding TYR into the merchant ecosystem and cross sell opportunities for payments and banking products) and new merchants, beginning with the hospitality vertical. TYR has issued 2.4mn performance rights to 6 POS system partners subject to achievement of certain conditions relating to Tyro Connect including execution of the platform agreement, satisfactory integration with POS technology, and activating certain amounts of users. The specific targets for its partners have not been disclosed. There are currently 3 apps integrated into Tyro Connect: me&u (TYR owns stake), Marsello (a targeted marketing app), and Google Food. As this is the first solution of this type TYR has developed we factor in a lower likelihood of success. 6. Investment in me&u TYR has made a A$3.5mn strategic equity investment in me&u (17%), which is a leading mobile order and pay in-venue solution for the hospitality industry. TYR provides the in-app payment solution for me&u, which allows patrons to order and pay for meals in venue via an app. me&u is one of the first key apps on Tyro Connect. 7. M&A and strategic partnerships Management has indicated that they would pursue disciplined M&A where it provides opportunities to leverage TYR’s platform or capabilities, gain scale, supplement TYR’s ecosystem, or enhance its market position in core verticals. 2aeb9e8b174644998c7303f5a989d953 Our forecasts and thesis do not incorporate any contribution from future M&A. 7 October 2020 20 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Value proposition to merchants In our view, TYR’s value proposition to merchants includes the following: 1. Extensive integrations with point of sale system partners 2. Authorised Deposit-taking Institution license 3. Vertical specific features 4. Reliability 5. Least cost routing 1. Extensive integrations with point of sale system partners In Australia the terminal hardware and the hardware hosting the Point of Sale (POS) system are typically physically separate. Since 1 August 2014 Australia has prohibited the use of signatures as an authentication method, and the ability to enter a PIN on software hosted on off-the-shelf mobile or tablet devices has generally been restricted by Australian regulation. These two factors have resulted in POS providers generally not including card-acceptance software in their products, instead partnering with merchant acquirers to provide terminals. As a result of terminals being physically separate from POS systems, merchants have two ways of accepting ‘card present’ payments: n Stand alone/manual input: merchant manually enters the payment amount n Integrated: the POS system electronically transmits the payment amount to the terminal. Reduces risk of keying errors, time required to enter the amount, and need for reconciliation between the POS and terminal. Merchant acquirers can be integrated into POS systems either through an in-house API 2aeb9e8b174644998c7303f5a989d953 (ethernet or Wi-Fi connection), or through a 3rd party provider’s software. TYR released its cloud-based in-house software to merchants in 2007, and does not charge extra for this integration. Exhibit 30 lists the key benefits of an integration solution. As at 1 October 2019, TYR was directly integrated with 286 POS systems, up 25 since 1 January 2019 and considerably more than competitors (refer Exhibit 31). Within this, no single POS provider serviced more than 10% of TYR’s merchant base. This base increased further to 306 integrations at the 1H20 result, and due to disruption from COVID-19 was unchanged at the FY20 result. 7 October 2020 21 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 30: Benefits of POS integration Exhibit 31: Tyro leads integrations with POS systems Number of POS system integrations (as at 1 October 2019) 300 286 - Faster transaction time through removal of manual entry - Removal of errors resulting from manual entry 250 - Terminals do not need to be tethered to POS hardware with cables - 200 > more mobility, less clutter 150 120+ - Terminals remain integrated as they are moved around a 100+ 100 merchant’s premises 50+ 50 - A single terminal can be shared between multiple instances of a 13 7 7 5 5 3 0 POS system - Card details do not need to be shared with the POS system. Details are sent directly via secure internet connection from the terminal to the merchant acquirer, and is only reliant on the POS system internet connectivity so the POS system can receive the authorisation notification. - No third parties can improve troubleshooting - Removes need to manually reconcile POS system recorded sales to payments received via the terminal Source: Company data At its FY20 result TYR indicated it could integrate with 306 POS systems. Source: Company data As stated, merchant acquirers can use 3rd party software (i.e. middleware) to integrated into POS systems. One major 3rd party provider is PC-EFTPOS, which recently rebranded as Linkly. Linkly has relationships with WBC, ANZ, CBA, NAB, Suncorp, St George, First Data, Currency Select and Bendigo Bank. The Linkly website indicates that it integrates with 500+ POS systems, and that it enables 85% of the integrated payments market in Australia, processing 2bn+ transactions a year. Disadvantages of using 3rd party software include: (1) it adds another level of complexity and can make it harder to troubleshoot problems; (2) the middleware provider is an additional cost; and (3) adding another provider in the system can slow down transaction speed. On the former PC-EFTPOS website, it stated that it processes EFTPOS transactions in 2-6 seconds, whereas payments processed on TYRs terminals are authorised in <1.5 seconds on average. 2aeb9e8b174644998c7303f5a989d953 As we previously discussed, TYR’s relationships with POS providers also serve as an important merchant acquisition channel generating 11% of leads in FY19 (Exhibit 17). 2. Authorised Deposit-taking Institution (ADI) license allows for faster settlement and broader services TYR was awarded an Authorised Deposit-taking Institution (ADI) license in August 2015; this is also referred to as an Australian banking license. As a result TYR is able to directly access the payments system, and has its own Exchange Settlement Account (ESA) held at the Reserve Bank of Australia allowing TYR to clear and settle funds with other banks. By comparison, merchant acquirers that are not an ADI need to have a commercial relationship with an entity that has an ESA to settle payments. Whether or not a merchant acquirer has an ESA has a meaningful impact on the length of time it takes for payments to be settled. As shown in Exhibit 32, ADIs are able to provide same day settlement to merchants who hold their merchant banking accounts with that institution. As at the FY20 result there were 3,675 merchants using the Tyro Bank Account which was launched in late 2015, representing 11.4% of its merchant 7 October 2020 22 Goldman Sachs Tyro Payments Ltd. (TYR.AX) base. Through being a Tier 1 member of the RBA’s payment infrastructure, TYR is able to offer T+1 (i.e. next business day) settlement to merchants that bank with other Tier 1 members. Non-ADIs have a delay of at least the next business day. Exhibit 32: TYR can provide best in class settlement times for its merchant network Comparison of settlement times Same day Settlement time* ADI settlement Tyro - Merchants with a Tyro Bank Account: same day settlement, (can choose cut off time from 8pm that evening to 5am the next morning) Yes - Other bank accounts: typically within 2 business days ANZ - Merchants with ANZ business account: same day settlement (instore: to 9pm AEST, online: to 5.30pm AEST or 6.30pm AEST depending on Gateway type) Yes - Other bank accounts: ANZ transfers next business day to merchants bank, merchants bank determines funds availability CBA - Merchants with CommBank business account: same day settlement (instore: to 10.00pm AEST, online: to 5.30pm AEST) Yes NAB - Merchants with NAB business acount: same day settlement (settle by 9.00pm AEST, funds visible on statement by 11.30pm, online: to 9.55pm AEST) Yes WBC - Merchants with Westpac business account: same day settlement (until 9.30pm) Yes Adyen - Settlement occurs 2 business days later (T+2) No Braintree - Settlement occurs within 2-5 business days ** Square - Sales made before 12am AEST will be settled by 1pm the following business day No Stripe - Settlements occurs 2 business days later No Shopify - Shopify Payments: settlement occurs 2 business days later No Smartpay - Settlement next business day No Live eftpos - Payments before 5.45pm AEST: settled 1-2 business days later - Payments after 5.45pm AEST: settled 2-3 business days later No * Note: variations apply with each provider according to payment type ** Braintree owned by PayPal which is a provider of Purchased Payment Facilities 2aeb9e8b174644998c7303f5a989d953 Source: Company data TYR is the only specialised payment provider in Australia which holds an ADI license. As such it is the only specialised provider which is also able to offer its own complementary banking products. We note that Cuscal (discussed in more detail in the ‘Competitive landscape’ section), is an ADI, but is focused on providing products and services to financial institutions, so we do not view it as a direct competitor. We note that holding an ADI license is a prerequisite for joining the New Payments Platform (NPP); TYR is not currently a member of the NPP. 3. Vertical specific features As previously discussed, TYR is primarily focused on the Hospitality, Health and Retail verticals, established the Services vertical in FY20, and intends to expand into Accommodation. TYR’s penetration of its current key verticals has been assisted by it offering vertical specific functionality. In hospitality, TYR offers a number of specific features including: 7 October 2020 23 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Pay@Table where a table’s bill can be retrieved remotely on the terminal (e.g. at the customers table) rather than needing to be initiated at the POS system, tipping, split bills and BarTab/GuestTab. In the health vertical, TYR offers integrated health claiming which allows a medical practitioner to process Medicare and private health insurance claims through the Tyro terminal. In response to COVID-19, TYR introduced a telehealth payments system which processes both gap fee payments and Medicare Benefits Schedule bulk-billed telehealth claims. Telehealth processing (incl. MOTO) generated A$222.3mn in transaction value in FY20, c. 1% of TYR’s total volume. As discussed earlier, TYR is in the process of trialing a new mobile terminal for the services and other verticals. We expect TYR to develop similar vertical specific solutions for services and accommodation. 4. Reliability TYR’s availability on the core acquiring platform was 99.99% in FY20. We note that the RBA, Australian Prudential Regulatory Authority (APRA) and industry are currently developing a set of standard operational performance statistics for individual institutions to disclose. This work has been delayed by COVID-19, but the RBA has highlighted the importance of it. 5. Least-cost routing In Australia, debit card transactions can be processed through 1 of 3 schemes: n Domestic scheme: eftpos n International scheme: Debit Mastercard n International scheme: Visa Debit 2aeb9e8b174644998c7303f5a989d953 Most Australian debit cards have functionality that allows them to be processed through either the domestic scheme or one of the two international schemes, and are referred to as multi-network debit cards (dual-network debit cards). The Merchant Service Fee can differ depending on the scheme used, as a result of differences in the size and structure of the interchange fees (% transaction vs. fixed fee per transaction). As shown in Exhibit 33, the domestic eftpos scheme has had the lowest total merchant fees since 2003. In FY20, 52.0% of card purchases were paid using debit cards; consequently, the scheme that debit cards are routed through has a meaningful impact on merchant profitability. 7 October 2020 24 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 33: eftpos has the lowest fees on average Exhibit 34: Debit is growing as a share of card purchases Total merchant fees (merchant service fees + other merchant fees) by Debit as % of total value of debit, credit and prepaid card purchases scheme 3.0 60% 52% 2.5 49% 50% 47% 44% 46% 2.0 42% 43% 41% 40% 40% 38% 37% 1.5 1.0 30% 0.5 20% 0.0 Sep-03 Sep-04 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Mar-03 Mar-05 Mar-07 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Mar-04 Mar-06 Mar-08 Mar-09 Mar-10 Mar-11 Mar-13 Mar-15 Mar-17 Mar-19 10% Mastercard & Visa Mastercard & Visa credit Mastercard & Visa debit American Express 0% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Diners Club eftpos Note: for Mastercard & Visa changes in reporting methodology resulted in slight decrease to Source: Reserve Bank of Australia (RBA) average fee for debit cards and slight increase to average fee for credit cards in June 2018. The overall average for Mastercard & Visa was unaffected. Source: Reserve Bank of Australia (RBA) A contactless card payment is a payment made in person by a cardholder who ‘taps’ their card against the terminal; these types of payments are also known as ‘tap-and-go’. According to the RBA, as of Nov 2016 contactless card payments made up 2/3 of all ‘card present’ payments in Australia. Before FY16, multi-network debit contactless card payments were only routed through the international schemes, however, since FY16 the eftpos network has provided an alternate transaction path. TYR introduced its least-cost routing (LCR) feature called Tap & Save in March 2018, which processes each eligible contactless multi-network debit card payment through the scheme TYR determines is the least expensive (eftpos or international scheme). The company estimates that on average eligible Tyro merchants would have saved 8.1% on Merchant Service Fees between Dec 2017 and Dec 2019 through adopting Tap & Save. 2aeb9e8b174644998c7303f5a989d953 The big 4 banks have opted to introduce ‘merchant choice routing’ (MCR) functionality, as we set out in Exhibit 35. Under this system, the merchant chooses whether to process all contactless debit card payments through either eftpos or the international schemes. CBA and NAB also enable merchants to set a value threshold for switching between the two options. We note there has recently been more focus on least cost routing, with WBC indicating in early August that it would be contacting customers that would benefit from processing through eftpos versus the international schemes to let them know that WBC will soon starting processing their payments over eftpos unless they opt out. 7 October 2020 25 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 35: Least-cost routing, TYR vs Big 4 Banks Routing solution Comment Tap & Save: each eligible contactless multi-network debit card payment is processed through the scheme TYR Tyro LCR determines is the least expensive (eftpos or international scheme) MCR is an optional feature. When activated all contactless transactions with multi-network debit cards are processed ANZ MCR through domestic eftpos network and not through the relevant international scheme. 3 options: - All contactless multi-network debit card transactions are processed through international schemes CBA MCR - All contactless multi-network debit card transactions are processed through the eftpos network - Lower value transactions are processed through one network (Mastercard/ Visa or eftpos), and higher value transactions are processed through the other network 3 options: - All contactless debit card transactions are processed through international schemes NAB MCR - Enable Merchant Choice Routing: all contactless debit card transactions are processed through the eftpos network - Enable Merchant Choice Routing with a limit: all transactions below a certain value are processed through Visa or Mastercard, and all transactions above that value are processed through eftpos. MCR is an optional feature. When activated all contactless transactions with multi-network debit cards are processed WBC MCR through domestic eftpos network and not through the relevant international scheme. Source: Company data Least cost routing is available on an opt-in basis to over 98% of TYR’s terminal fleet, and almost 27% of these terminals had opted in as of 30 June 2020. 2aeb9e8b174644998c7303f5a989d953 7 October 2020 26 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Competitive landscape In this section we analyse the large number of participants in the Australian payments industry. Exhibit 36 summarises the key findings we discuss in more detail below. Exhibit 36: Benchmarking of TYR vs key competitors TYR ANZ CBA NAB WBC Adyen Braintree Shopify Square Stripe Live Eftpos Smartpay Instore Online ADI Yes Yes Yes Yes Yes No ** No No No No No Same day settlement Not a 4.6k Number of terminals, 30 51k 151k 255k 154k 139k Not an ADI Online only*** Online only*** member of Online only Not an ADI (31 Mar Jun 2019* AusPayNet 2020) Number of merchants 32,176**** 53,400***** 8,000+ n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. ’About’ website n.a. Date of disclosure 30-Jun-20 31-Dec-19 page, accessed 3 Aug 2020 Payments Total Australian Operating Income measure revenue & Australian acquiring profit income revenue revenue A$202.8mn n.a. n.a. n.a. n.a. €6.45mn n.a. US$68.6mn n.a. n.a. n.a. NZ$9.5mn A$10.4mn A$98.7mn A$9.0mn FY20 (Mar Period FY20 CY19 CY19 Y/E) 115 (AFR 38 (LinkedIn) Number of employees 476 22 No office in n.a. n.a. n.a. n.a. n.a. article) n.a. Live Group n.a. Australia Date 30-Jun-20 31-Dec-19 5-Jul-20 3-Aug-20 * Data only available for members of AusPayNet, individual company data only available for ADIs ** Braintree owned by PayPal which is a provider of Purchased Payment Facilities *** Note in-store payment capability shown on Australian site, however, uncertain how widely available this is **** Excludes 3,250 merchants which were inactive at 30 Jun 2020 due to impact of COVID-19 and lockdowns ***** ~60,000 merchants with 89% penetration of Shopify Payments Source: Company data, Data compiled by Goldman Sachs Global Investment Research, Goldman Sachs Global Investment Research In Australia today, the largest merchant acquirers by the number of terminals in the 2aeb9e8b174644998c7303f5a989d953 market are the 4 major banks (ANZ.AX, CBA.AX, NAB.AX, and WBC.AX, all covered by Andrew Lyons). As can be seen from Exhibit 37 and Exhibit 38, specialist payment providers such as TYR have been growing terminals in the market while the banks have been relatively steady. We note these charts only include AusPayNet members and that Square, one of TYR’s key competitors, is not a member of AusPayNet. 7 October 2020 27 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 37: TYR is the fifth largest merchant acquirer... Exhibit 38: ... by number of terminals Number of EFTPOS terminals by AusPayNet member as at 30 June Change in number of EFTPOS machines from 30 Jun 2017 to 30 Jun 2019, AusPayNet members 300,000 30,000 28,172 250,000 25,000 19,475 200,000 20,000 150,000 15,000 100,000 10,000 5,105 50,000 5,000 1,793 874 0 0 -5,000 (2,690) (3,286) (4,710) -10,000 CBA NAB ANZ WBC TYR BEN SUN Other non- Jun-17 Jun-18 Jun-19 ADI Note: Citi now operated by Wirecard, BOQ now operated by First Data. Adyen & First Data in Source: APRA other non-ADI Source: APRA Based on our discussions with market participants, we view Square and Adyen as the main competitors to TYR among the specialist payment providers. As we set out in Exhibit 39, Tyro, Square and Adyen have different core merchant segments. Both Square and Adyen have indicated, as we discuss in more detail below, intentions to move into adjacent merchant segments (i.e. upstream for Square, downstream for Adyen). Whilst TYR has a stated focus on the SME market, the company has indicated that it also services large and micro merchants where it can meet their needs efficiently. Exhibit 39: TYR primarily targets small and medium sized businesses Target business segments by merchant acquirer Micro Small - Medium Enterprise <$50,000 $50,000 - $5mn >$5mn TYR 2aeb9e8b174644998c7303f5a989d953 Square Adyen ANZ, CBA, NAB, WBC (BEN, SUN) Source: Company data, Goldman Sachs Global Investment Research The key theme in the merchant acquirer landscape in Australia currently is the shift to unified commerce, with traditionally card present (instore/ in premise) providers such as TYR, Square and the 4 major banks launching online solutions, and online native providers such as Adyen, Shopify, Braintree and Stripe seeking to move offline. As we set out in Exhibit 40, each provider is at a different stage of this transition. 7 October 2020 28 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 40: Providers moving towards omni-channel offering Offline Online Tyro Square Major 4 Banks Adyen Braintree Shopify Stripe Live eftpos Smartpay Source: Goldman Sachs Global Investment Research Market participants TYR’s competitors can be categorized into 3 groups: n Major Australian banks n Domestic specialty payment providers n Global technology payment providers We note that this is not an exhaustive list of participants in the Australian payments system. For instance the regional banks are participants and there are large global payment providers such as First Data (Fiserv) operating in Australia. However, this analysis captures the key competitors for TYR in our view. Major Australian banks 2aeb9e8b174644998c7303f5a989d953 As of 30 June 2019, the 4 major Australian Banks (ANZ, CBA, NAB, WBC) issued 71% of the EFTPOS machines in Australia (based on AusPayNet data which, as mentioned earlier, excludes Square). In addition to merchant acquiring, the 4 major banks provide card issuing to consumers and businesses, and offer a broad range of personal and business banking products. In this way the major 4 banks have more touchpoints into the payments ecosystem than a specialist merchant acquirer such as TYR does. Through their extensive personal banking businesses, the major 4 also have another customer acquisition channel; e.g. a personal banking client decides to establish a small business and due to familiarity opts to use the business products offered by their existing bank. Domestic specialty payment providers Amongst the domestic specialty payment providers, we view Live Eftpos and Smartpay as the closest competitors to TYR. Cuscal, Integrapay and Quest Payment Systems are other notable participants in the payments industry, however, due to different focuses of these businesses we do not view them as direct competitors to TYR. 7 October 2020 29 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Live eftpos (Live Group, private): Live eftpos is an Australian company founded in 2011, targeting SMEs. The company states that it has over 8,000 merchants, and has accepted over A$2bn of transactions. This compares to TYR which as at 30 Jun 2020 had 32,176 active merchants and processed A$20.1bn in transaction value in FY20. As of August 2019, Live eftpos offered over 11 different payment types including UnionPay, and Zip is now also available. Smartpay (SPY.NZ/SMP.AX, Not Covered): Smartpay is a New Zealand company which operates in both Australia and New Zealand performing a range of payments related activities including the provision of eftpos terminals to customers, processing transactions (acquiring), sale of eftpos terminals, and software development. The company launched its Australian acquiring capability in October 2017; key stats relating to this segment are set out in Exhibit 41 and Exhibit 42. This is an instore offering. Exhibit 41: Australian acquiring launched Oct 2017 Exhibit 42: Terminals in the market increasing SMP.AX, Australian revenue by segment, NZ$mn, Mar Y/E Australian acquiring terminals $12 5,000 4,613 4,500 $10 4,000 $8 3,500 $6 9.5 3,000 2,500 2,200 $4 2.5 2,000 0.5 1,500 $2 1,500 2.2 1.9 1.6 $0 1,000 FY18 FY19 FY20 500 Service revenue Transactional income Other service revenue 0 Short term rentals Sale of goods Nov-18 31-Mar-19 31-Mar-20 Source: Company data Source: Company data 2aeb9e8b174644998c7303f5a989d953 Cuscal (Not listed): Cuscal is an Australian financial services company which is an independent provider of payments solutions. Earlier forms of the company were founded in the 1960s, and in 1997 Credit Union Services Corporation (Australia) Limited was established. This was shortened in 2006 to Cuscal Limited. Cuscal is primarily involved in providing payment related products and services to Australian financial and consumer centric institutions (i.e. a business-to-business model rather than business-to-merchant model like TYR is). The company has c. 120 clients, including banks, mutuals, fintechs and corporates. Cuscal partners with these clients to deliver payment solutions. We note that Square is a client of Cuscal (here). Cuscal’s products and services include: electronic and paper payment processing including EFTPOS, direct entry, member and corporate chequing, and BPAY; card platform services including rewards; card products including Visa debit and credit cards, and rediCARD debit; liquidity management and settlement services; development of digital applications; network communication services; specialised finance facilities; fraud management services; developing payments infrastructure for the New Payments Platform; and, 86 400 which is a retail digital bank. 7 October 2020 30 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Cuscal is an ADI, and one of the services it offers is sponsoring companies into the Australian payments network. The company’s website notes that it is partnering with a growing number of companies, including internet payments gateways and aggregators, to provide its clients with affordable and customizable payments acceptance solutions. Given Cuscal’s focus on supporting financial and consumer centric institutions, we do not view it as a direct competitor to TYR. Integrapay (Private): Integrapay is a payment solutions provider founded in 2009 in Australia, and today has operations in Australia, New Zealand, the UK and the US. The company allows merchants to accept subscription, recurring and one-off payments from credit/ debit cards or bank accounts through online/ ecommerce, Direct Debit and mobile apps. Given Integrapay’s different focus payment areas, we do not view it as a direct competitor to TYR. Quest Payment Systems: Quest is an Australian payment solution company (private). It has over 20 years experience designing and manufacturing payment terminal hardware locally. Solutions offered by Quest include: fixed line and mobile payment terminal hardware, gift card and online payment solutions, software, EMV smart card, professional consulting services, contactless, communications and transaction routing solutions. Financial institution customers of Quest include BEN, NAB and WBC. In FY19 Quest had 104 employees, and generated A$22.6mn in revenue and A$4.1mn in NPAT. 2aeb9e8b174644998c7303f5a989d953 7 October 2020 31 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Financials Income statement Key assumptions that drive our P&L for TYR are discussed below. Revenues n Merchant service fee (88% of terminal year revenues) - The substantial majority of TYR’s group revenues are driven by the merchant service fee (MSF) it charges merchants. This growth will be driven by a combination of market growth in electronic payments (we assume a CAGR of 7% over our 10 year forecast period which is in line with the prior 10yr CAGR), market share gains we anticipate TYR can achieve and a take rate assumption. Exhibit 43 and Exhibit 44 show our assumptions which drive an MSF revenue CAGR of 16% over our forecast period (FY20-F30E). Exhibit 43: Our forecasts impute that TYR’s market share of its Exhibit 44: ...we assume a gradually declining take rate over our target market achieves 28%... forecast period Market size, TYR transaction value forecasts and the implied market TYR Merchant Service Fee as a % of transaction value processed share TYR achieves in our forecasts $350 $336.4 30% 0.98% 28% $300 25% 0.96% 0.95% 0.94% $250 0.94% $209.5 20% 0.93% $195.8 $200 $183.0 $159.8 $171.0 $171.0 17% 0.92% $149.4 15% 15% $150 0.90% 13% 0.90% 12% $93.4 10% 0.89% 10% 0.88% $100 0.88% 8% 0.88% 7% $36.2 5% $50 $17.5 $20.1 $23.5 $29.5 $10.6 $13.4 0.86% 0.85% $0 0% FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY30E 0.84% Size of market (by transaction value) (A$bn) 0.82% TYR Transaction value (A$bn) 0.80% Implied market share (RHS) FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY30E 2aeb9e8b174644998c7303f5a989d953 Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research n Terminal fee revenues (7% of terminal year revenues) - we assume terminal fee revenues grow in line with the merchant base of TYR over our forecast period (i.e. a 10yr CAGR of 14% over our forecast period). n Banking business (4% of terminal year revenues) - TYR’s ability to offer business banking to its SME market is a clear advantage vs. non-bank merchant acquirers. Our forecasts assume that its loan origination book grows from A$60mn in FY20 to c. A$516mn in FY30E generating A$38mn in revenues in our peak year (from A$1.8mn reported in FY20, which includes A$2.4mn fair value adjustment). Costs n Direct costs - Payments business - our forecasts assume TYR maintains a Gross Profit Margin above 40% over our forecast period, assuming minimal yoy movement in transaction processing costs relative to the transaction values that TYR processes (90%+ of direct costs). We note there could be scope for some improvements in interchange and scheme fees with further scale but we assume this is passed on to 7 October 2020 32 Goldman Sachs Tyro Payments Ltd. (TYR.AX) its customers. n Direct costs - Banking Business - as our forecasts assume TYR’s lending business is underpinned by the term deposit balances of its merchants, the main direct cost in this business relates to lending losses which we assume run at 1.44% of value outstanding in the period in line with FY20. n Other key Costs of Doing Business (CODB): (1) Employee costs (54% of CODB in our terminal year) - TYR has invested aggressively in headcount in recent years which has grown from 371 at the end of FY17 to 476 at the end of FY20 with over 50% of this headcount in product development/technology related functions. We forecast growth in this cost base of 3.5% p.a. out to FY30E and expect technology and sales and marketing to remain the areas in which incremental investment will continue to be focused. (2) Marketing costs (21% of CODB in our terminal year) - TYR has indicated it is increasing its investment in marketing and promotion to raise awareness of its brand in the market. In FY20 it spent 2.7% of revenues on marketing, and we assume this increases to 4.0% of revenues over our forecast period. (3) Communication, hosting and licensing costs (7% of CODB in our terminal year) - This includes spend on licenses for cloud-based services used for storage, servers and processing, platform, systems scalability work, digital merchant onboarding, increased security and data infrastructure. We assume that over time, TYR gets some operating leverage from this cost line. Exhibit 45: We assume GP Margins for TYR of 44% in terminal year, Exhibit 46: ...operating leverage should emerge by FY22E and as mix shift impacts near term margins (larger customers initially EBITDA margins to peak at ~24% takes margins down) TYR EBITDA Margin forecast TYR Gross Profit Margin forecasts 47% 46.5% 46.6% 30% 24.4% 2aeb9e8b174644998c7303f5a989d953 46% 25% 45% 20% 44.4% 43.9% 43.9% 44% 15% 9.3% 43% 42.7% 10% 42.3% 42% 41.7% 5% 3.5% 41% 0% (2.1%) (1.8%) 40% -5% (3.2%) (5.7%) (5.0%) 39% -10% FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY30E FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY30E Source: Company data, Goldman Sachs Global Investment Research Source: Company data, Goldman Sachs Global Investment Research One characteristic investors should be aware of is that TYR’s Gross Profit Margins are relatively low due to fees it needs to pay card schemes and bank issuers (refer illustration of its unit economics in Exhibit 23). We contrast TYR’s GP Margins with some of its ANZ tech-based peers in Exhibit 47. Green arrows indicate those companies that will see GP Margins rise with scale. For example, Afterpay (APT.AX, Neutral) will naturally see its GP Margin (which we define as Net Transaction Profit Margin dividend by its Merchant take rate) rise as bad debts fall, while Megaport (MP1.AX, Neutral) will 7 October 2020 33 Goldman Sachs Tyro Payments Ltd. (TYR.AX) see GP Margins rise as utilisation of its data centre network improves given the initial set up costs are largely fixed per data centre. Similarly, with Nearmap (NEA.AX, Neutral), its largest direct cost is the cost of image capture, but once that cost is sunk, each incremental subscription for the service has in increasingly high GP Margin. Orange arrows indicate GP Margins which we believe will remain irrespective of scale. Pushpay (PPH.AX, Buy on CL) is an example of this. It has similar characteristics to TYR in that it processes payments but its GP Margins are now fairly stable at around 65%. Exhibit 47: TYR has amongst the lowest GP Margins of the tech Exhibit 48: Peak GP Margin and EBITDA Margin forecasts put into based stocks under our coverage... context Gross Profit Margin at last reported result (%) Peak (FY30E) GP Margin and EBITDA Margin forecasts for tech-related stocks under our coverage 70% 90% 80% 60% 70% 50% 60% 50% 40% 40% 30% 30% 20% 20% 10% 10% 32% 13% 39% 15% 44% 24% 60% 45% 62% 47% 70% 42% 88% 55% 0% 31% 39% 44% 43% 58% 63% 65% TPW RBL TYR APT PPH MP1 NEA 0% TPW RBL TYR MP1 APT NEA PPH Peak GP Margins Peak EBITDA Margins Source: Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research Lower GP Margins are not necessarily indicative of a weaker business model than peers with higher GP Margins, but they are indicative of how high terminal year EBITDA Margins can reach. This is illustrated in Exhibit 48 above which shows that our terminal year margin assumptions across our tech related coverage broadly shows that the higher the GP Margin of a business, the higher the potential EBITDA margin may be in the terminal year. 2aeb9e8b174644998c7303f5a989d953 Our forecasts for TYR’s income statement are shown in Exhibit 49 below. We forecast TYR to be break even at the EBITDA level from FY22E onwards. 7 October 2020 34 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 49: TYR Income Statement (A$mn) % growth FY20-FY23E FY18 FY19 FY20 FY21E FY22E FY23E CAGR FY19 FY20 FY21E FY22E FY23E Payments revenue & income $143.0 $183.7 $202.8 $231.5 $289.9 $352.3 20% 28.4% 10.4% 14.1% 25.2% 21.5% Lending income $1.6 $2.9 $1.8 $3.7 $6.0 $9.0 70% 87.5% -38.1% 105.2% 60.0% 50.0% Investment income $2.5 $2.3 $1.8 $1.8 $1.8 $1.8 0% -6.6% -23.6% 0.0% 0.0% 0.0% Other revenue and income $1.1 $0.8 $4.2 $1.1 $1.1 $1.1 -37% -28.8% 422.0% -75.0% 0.0% 0.0% Total revenue $148.2 $189.8 $210.7 $238.1 $298.7 $364.1 20% 28.0% 11.0% 13.0% 25.5% 21.9% Payments direct expenses ($79.1) ($106.2) ($116.7) ($136.9) ($173.5) ($208.0) 21% 34.4% 9.8% 17.3% 26.8% 19.9% Interest expense on deposits ($0.1) ($0.3) ($0.5) ($0.4) ($0.6) ($0.8) 17% 150.9% 87.0% -23.7% 58.5% 33.0% Gross profit $69.1 $83.3 $93.5 $100.8 $124.6 $155.3 18% 20.5% 12.3% 7.8% 23.6% 24.7% Gross profit margin 46.6% 43.9% 44.4% 42.3% 41.7% 42.7% -272.1bp 49.5bp -203.6bp -63.6bp 95.4bp Lending losses ($0.4) ($0.5) ($1.1) ($0.9) ($1.4) ($2.2) 26% 31.9% 100.7% -16.8% 59.7% 51.8% Non-lending losses ($0.1) ($0.3) ($0.9) ($0.5) ($0.6) ($0.8) -4% 259.2% 241.2% -41.7% 25.8% 22.5% Employee benefits expense ($54.6) ($61.2) ($67.7) ($71.0) ($76.0) ($79.8) 6% 12.2% 10.5% 5.0% 7.0% 5.0% Other operating expense ($21.4) ($27.4) ($28.2) ($32.6) ($35.9) ($38.7) 11% 28.0% 3.2% 15.3% 10.4% 7.7% Total cost of doing business ($76.4) ($89.4) ($97.8) ($105.0) ($114.0) ($121.5) 7% 17.0% 9.4% 7.3% 8.6% 6.6% Operating expense % revenue 51.6% 47.1% 46.4% 44.1% 38.2% 33.4% -445.8bp -66.6bp -233.9bp -592.9bp -480.6bp EBITDA ($7.4) ($6.1) ($4.4) ($4.2) $10.5 $33.8 -16.7% -28.8% -3.5% -349.3% 221.3% EBITDA margin -5.0% -3.2% -2.1% -1.8% 3.5% 9.3% 173.7bp 116.1bp 30.3bp 529.4bp 576.0bp D&A ($10.2) ($11.0) ($12.5) ($12.7) ($13.7) ($15.1) 7.9% 14.0% 1.1% 7.9% 10.3% EBIT ($17.6) ($17.1) ($16.9) ($16.9) ($3.1) $18.7 -2.5% -1.4% -0.1% -81.4% -695.6% EBIT margin -11.8% -9.0% -8.0% -7.1% -1.1% 5.1% 282.0bp 100.6bp 93.2bp 603.6bp 619.4bp Net interest expense ($1.1) ($0.9) ($0.5) ($0.5) ($0.5) ($0.5) -19.5% -41.8% 0.0% 0.0% 0.0% Profit before tax ($18.7) ($18.0) ($17.4) ($17.4) ($3.7) $18.2 -3.5% -3.4% -0.1% -78.9% -594.5% Tax $1.3 $2.0 $0.0 $0.0 $0.0 $0.0 55.3% -100.0% n.m. n.m. n.m. Underlying NPAT ($17.4) ($16.1) ($17.4) ($17.4) ($3.7) $18.2 -7.8% 8.4% -0.1% -78.9% -594.5% NRIs post tax ($1.4) ($2.6) ($20.6) $0.0 $0.0 $0.0 83.8% 695.4% -100.0% n.m. n.m. Reported NPAT ($18.8) ($18.7) ($38.1) ($17.4) ($3.7) $18.2 -0.9% 103.8% -54.2% -78.9% -594.5% Underlying diluted EPS (cents) - - (3.5) (3.2) (0.7) 3.3 -7.0% -79.0% -592.2% DPS (cents) - - - - - Tax rate n.m. n.m. 0.0% 0.0% 0.0% 0.0% n.m. n.m. 0.0bp 0.0bp 0.0bp Source: Company data, Goldman Sachs Global Investment Research 2aeb9e8b174644998c7303f5a989d953 7 October 2020 35 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Balance sheet TYR is in a net cash position with no debt. As an authorised deposit taking institution, TYR is subject to minimum capital requirements. Exhibit 50: TYR Balance Sheet (A$mn) FY19 FY20 FY21E FY22E FY23E Cash $131.6 $103.8 $97.4 $106.4 $129.4 Receivables from other financial institutions $7.9 $18.4 $18.4 $18.4 $18.4 Trade debtors $27.8 $15.2 $17.1 $21.5 $26.2 Loans receivable from merchants $15.7 $9.8 $18.9 $30.2 $45.8 Inventories $0.1 $0.1 $0.1 $0.1 $0.1 Prepayments $1.8 $2.2 $2.2 $2.2 $2.2 Other $0.5 $0.8 $0.8 $0.8 $0.8 Total current assets $185.3 $150.3 $155.0 $179.7 $223.1 Net PPE $18.7 $17.3 $19.5 $21.6 $23.2 Net Goodwill $0.0 $0.0 $0.0 $0.0 $0.0 Net other intangibles $2.5 $5.4 $8.4 $11.5 $14.8 Right of use assets $7.3 $4.5 $4.5 $4.5 $4.5 Net investment in lease $1.4 $0.5 $0.5 $0.5 $0.5 Financial investments $37.2 $69.8 $69.8 $69.8 $69.8 FITB $17.8 $14.0 $14.0 $14.0 $14.0 Other $0.0 $2.1 $3.4 $6.2 $8.3 Total non-current assets $84.8 $113.5 $120.1 $128.1 $135.1 Total assets $270.1 $263.8 $275.1 $307.8 $358.2 Borrowings $0.0 $0.0 $0.0 $0.0 $0.0 Trade creditors $20.7 $10.3 $11.7 $14.6 $17.9 Merchant deposits $26.9 $50.5 $77.8 $111.3 $140.2 Provisions $3.2 $4.3 $4.3 $4.3 $4.3 Lease liabilities $4.1 $4.7 $4.7 $4.7 $4.7 Other $0.0 $0.0 $0.0 $0.0 $0.0 Total current liabilities $54.9 $69.9 $98.5 $135.0 $167.1 Borrowings $0.0 $0.0 $0.0 $0.0 $0.0 Provisions $1.0 $1.4 $1.4 $1.4 $1.4 Lease liabilities $7.4 $2.8 $2.8 $2.8 $2.8 Total non-current liabilities $8.4 $4.2 $4.2 $4.2 $4.2 2aeb9e8b174644998c7303f5a989d953 Total liabilities $63.4 $74.1 $102.8 $139.2 $171.3 Share capital $263.4 $265.8 $265.8 $265.8 $265.8 Reserves $17.5 $28.5 $28.5 $28.5 $28.5 Retained profits ($74.1) ($104.5) ($121.9) ($125.6) ($107.4) Total equity $206.8 $189.7 $172.3 $168.6 $186.8 Source: Company data, Goldman Sachs Global Investment Research 7 October 2020 36 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Cash flow statement TYR’s largest capital expenditure is payments for the terminals rented by its merchants. We expect this to grow over time in line with growth in TYR’s merchant base. TYR treats this expenditure as an operating cashflow, we have treated it as an investing cashflow in line with how we typically treat payments of this type across our coverage. The company capitalises a proportion of employee benefits expenses relating to software development costs as intangible assets (classified in Exhibit 51 as capital expenditure - expansion). Exhibit 51: TYR Cash Flow Statement (A$mn) FY18 FY19 FY20 FY21E FY22E FY23E Pre tax profit ($18.7) ($18.0) ($17.4) ($17.4) ($3.7) $18.2 Depreciation $10.2 $11.0 $9.7 $9.8 $10.8 $12.2 Tax paid $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Net lease interest expense $1.1 $0.9 $0.5 $0.5 $0.5 $0.5 Loan impairments $0.4 $0.5 $0.0 $0.9 $1.4 $2.2 Net change in merchant loans ($3.5) ($8.1) $0.3 ($7.0) ($11.3) ($15.6) Net change in merchant deposits $7.6 $15.4 $23.6 $27.3 $33.5 $28.9 Change in other net working capital ($0.6) ($4.1) $2.2 ($0.6) ($1.4) ($1.5) Other $0.0 ($0.4) ($3.5) $0.0 $0.0 $0.0 Net operating cashflow ($3.4) ($2.8) $15.4 $13.5 $29.9 $44.9 Payments for terminals ($6.7) ($8.1) ($7.2) ($10.1) ($10.5) ($10.9) Capital expenditure - maintenance ($2.9) ($1.0) ($1.7) ($1.7) ($2.1) ($2.5) Capital expenditure - expansion $0.0 ($2.5) ($3.1) ($3.2) ($3.5) ($3.6) Net proceeds from/ (investment in) term deposits $35.0 $10.0 ($10.0) $0.0 $0.0 $0.0 Purchase of financial investments ($17.7) ($3.5) ($42.2) $0.0 $0.0 $0.0 Proceeds from sale of financial investments $0.0 $5.7 $13.0 $0.0 $0.0 $0.0 Acquisitions $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Asset sales $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Other $0.0 $0.0 ($3.1) $0.0 $0.0 $0.0 Net investing cashflow $7.8 $0.6 ($54.3) ($15.0) ($16.0) ($17.1) Borrowings incurred/(repaid) $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Equity raised $2.9 $0.6 $123.9 $0.0 $0.0 $0.0 Dividends paid $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 Other ($4.2) ($4.5) ($4.8) ($4.8) ($4.8) ($4.8) Net financing cashflow ($1.3) ($3.9) $119.1 ($4.8) ($4.8) ($4.8) Net cash retained/(Increase in net debt) $3.0 ($6.2) $80.2 ($6.4) $9.0 $23.0 2aeb9e8b174644998c7303f5a989d953 Source: Company data, Goldman Sachs Global Investment Research 7 October 2020 37 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Valuation We adopt a blended methodology for valuing TYR in line with a similar combination of DCF and relative valuation in our coverage for ALU.AX, RBL.AX, and TPW.AX. n Fundamental valuation (85%) - Equal weighted between: o 10yr DCF - WACC 8.9% TGR 2.5%, Terminal year revenues of A$908.7mn (implying 28% share of its addressable merchant market but note this excludes the Accommodation and Services market), Group GP Margins of 44% (FY20 44%) and EBITDA Margins 24% (FY20 -2.1%). Our DCF valuation per share is A$3.00. o EV/Gross Profit - We take the median EV/GP FY21E multiple of domestic tech and international payment peers of 15.8X and apply a 20% discount to this to reflect TYR’s lower revenue growth and margin profile relative to peers. This results in a 12.4X multiple applied to our FY22E GP forecasts for TYR of A$124.6mn to derive a value per share of A$3.10. n M&A Valuation (15%) - We assign an M&A rank of 2 for TYR to reflect that it has a strong growth profile ahead with a relatively capital light business model and may be an attractive bolt on for a larger international player. We note that the payments market has been active with M&A in recent years as scale is a key value driver. Exhibit 60 in ‘Appendix 3: M&A Framework’ details recent M&A activity in the sector. We use TYR’s peak historic 12mth forward EV/Revenue multiple of 6.7X and apply this to our FY22E revenue forecast of A$298.7mn. This derives an M&A valuation of A$4.00. For some context, the average multiple on which payments business have been acquired (per Exhibit 60) is 4.5X but this has varied between 1X to 10X revenues. Our blended valuation for TYR is shown in Exhibit 52. As our blended valuation of A$3.20 2aeb9e8b174644998c7303f5a989d953 implies a potential return of -14% compared to 17% average in our coverage, we initiate on TYR with a Neutral rating. 7 October 2020 38 Goldman Sachs Tyro Payments Ltd. (TYR.AX) Exhibit 52: TYR Valuation Summary DCF Valuation - 42.5% weighted A$ Present Value of Cash Flows $300.2 Terminal Value $1,025.6 Cumulative Present Value of Cash Flows $1,325.8 Less debt/(cash) (FY20E) ($145.4) Equity Value $1,471.1 Diluted shares on issue (mn) 542.1 DCF valuation per share $2.71 DCF valuation per share - 1yr fwd $3.00 EV/Gross Profit - 42.5% weighted FY21 peer EV/Gross Profit 12.4 FY22E Gross Profit $124.6 Enterprise value $1,544.8 Less debt/(cash) (FY21E) ($139.0) Equity value $1,683.8 Diluted shares on issue 542.1 Equity value per share (A$) $3.10 M&A Valuation - 15% weighted Peak 12yr fwd EV/Sales 6.7 FY22E Sales $298.7 Enterprise value $2,013.4 Less debt/(cash) (FY21E) ($139.0) Equity value $2,152.4 Diluted shares on issue 542.1 Equity value per share (A$) $4.00 BLENDED VALUATION $3.20 Source: Goldman Sachs Global Investment Research To put our valuation into context, Exhibit 53 and Exhibit 54 highlight that TYR appears fairly valued on an EV/Sales and EV/Gross Profit basis when we consider the combination of revenue growth + EBITDA margin outlook we forecast vs. peers. 2aeb9e8b174644998c7303f5a989d953 Exhibit 53: TYR appears fairly valued on a EV/Sales vs. Rule of 40 Exhibit 54: and, when adjusted for its lower margins, TYR currently outlook... screens as fairly valued FY22E EV/Sales vs. Rule of 40 FY22E EV/Gross Profit vs. Rule of 40 (Revenue growth + EBITDA Margin) 25 35 MP1.AX 30 20 MP1.AX FY22 EV/Sales, Jun Y/E APT.AX APT.AX FY22 EV/GP, Jun Y/E 25 SQ 15 XRO.AX 20 WTC.AX XRO.AX TYR.AX PYPL WTC.AX 15 10 PYPL SQ PPH.NZ NEA.AX PPH.NZ 10 NEA.AX APX.AX TYR.AX TPW.AX 5 APX.AX EML.AX EML.AX 5 RBL.AX RBL.AX TPW.AX 0 0 0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70% FY22 Rule of 40, Jun Y/E FY22 Rule of 40, Jun Y/E Green = international peers Green = international peers Source: Bloomberg, Goldman Sachs Global Investment Research Source: Goldman Sachs Global Investment Research 7 October 2020 39 Goldman Sachs Tyro Payments Ltd. (TYR.AX) We consider the following companies to be TYR’s peer group. Exhibit 55: TYR Domestic and International comps table Ticker Company name EV/EBITDA Jun Y/E EBITDA margin Jun Y/E EV/ Gross Profit Jun Y/E EV/Sales Jun Y/E Sales growth Jun Y/E Rule of 40 Jun Y/E Market cap 19-22 USDmn 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 2020 2021 2022 CAGR 2020 2021 2022 Domestic peers APT.AX Afterpay Ltd. 15852.0 679.7 1273.0 231.8 6% 2% 8% 57.5 37.0 24.6 42.6 26.4 17.8 96.6% 65.3% 48.2% 68.9% 103% 67% 56% APX.AX Appen Ltd 2,959 31.9 28.1 21.7 17% 19% 21% n.a. 13.3 10.8 5.5 5.4 4.5 35.3% 24.7% 20.3% 26.6% 52% 44% 41% EML.AX EML Payments Ltd 757 93.1 17.0 12.3 10% 31% 35% 29.2 7.5 6.2 9.6 5.2 4.4 24% 53% 20% 31% 35% 84% 55% MP1.AX Megaport Ltd. 1,755 -95.1 -154.9 371.8 -42% -18% 5% 92.7 54.8 33.3 39.8 27.6 19.4 65% 46% 42% 51% 23% 28% 48% NEA.AX Nearmap Ltd. 756 -62.6 -198.8 76.0 -17% -4% 10% 16.9 12.4 9.6 10.6 8.8 7.3 24% 13% 20% 19% 8% 9% 30% PPH.NZ Pushpay Holdings 1,611 51.0 28.3 26.0 24% 32% 32% 18.0 13.5 12.6 11.9 8.9 8.3 33% 26% 8% 22% 57% 58% 40% RBL.AX Redbubble Ltd. 793 59.3 15.0 17.7 5% 12% 11% 7.9 4.7 4.9 3.0 1.9 1.9 36% 50% -5% 25% 41% 63% 6% TPW.AX Temple & Webster Group 1,112 160.7 77.1 49.9 5% 7% 8% 19.2 11.8 8.6 8.6 5.3 3.8 74% 57% 37% 55% 79% 63% 45% WTC.AX WiseTech Global Ltd 6,014 47.0 48.1 35.8 30% 34% 37% n.a. 19.5 15.8 14.2 16.2 13.3 23% 18% 22% 21% 53% 51% 60% XRO.AX Xero Ltd 10,397 74.4 78.6 60.5 20% 22% 24% 15.0 20.5 17.0 14.8 17.5 14.6 27% 19% 19.5% 22% 47% 41% 44% Mean 103.9 121.1 90.3 6% 14% 19% 32.1 19.5 14.3 16.1 12.3 9.5 44% 37% 23% 34% 50% 51% 42% Median 55.1 28.2 42.8 8% 16% 16% 18.6 13.4 11.7 11.2 8.9 7.8 34% 36% 20% 26% 49% 55% 44% Global peers PYPL PayPal Holdings 237,514 42.6 34.6 28.6 28% 28% 29% 21.7 18.0 15.4 11.8 9.8 8.3 18% 19% 18% 19% 46% 48% 47% SQ Square Inc. 81,308 211.2 172.8 97.8 8% 8% 11% 40.4 33.4 25.4 16.2 13.6 10.8 25% 19% 25% 23% 33% 28% 37% Mean 126.9 103.7 63.2 18% 18% 20% 31.0 25.7 20.4 14.0 11.7 9.6 22% 19% 22% 21% 39% 38% 42% Median 126.9 103.7 63.2 18% 18% 20% 31.0 25.7 20.4 14.0 11.7 9.6 22% 19% 22% 21% 39% 38% 42% Mean 107.8 118.2 85.8 8% 14% 19% 31.9 20.5 15.4 15.7 12.2 9.5 40% 34% 23% 32% 48% 49% 42% Median 55.1 31.5 42.8 9% 16% 16% 20.5 15.8 14.0 11.8 9.4 8.3 30% 25% 20% 24% 46% 49% 44% GSe: APT.AX, MP1.AX, NEA.AX, PPH.NZ, RBL.AX, TPW.AX, PYPL, SQ. Bloomberg consensus: APX.AX, EML.AX, WTC.AX, XRO.AX. Source: Goldman Sachs Global Investment Research, Bloomberg 2aeb9e8b174644998c7303f5a989d953 7 October 2020 40
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