The PayGroup Ltd (ASX: PYG) share price had an impressive run on the ASX today, closing 12.10% higher after being up by as much as 19.35% throughout the day.
Based on today's closing price of 69.5 cents, PayGroup's market capitalisation stands at only $48 million. So it's important to note that we're very much at the smaller end of the ASX spectrum here.
PayGroup is a specialist human capital management software and services provider, tasked with performing payroll, pay to bill, human resources, and treasury services on behalf of clients. It has 2 businesses, PayAsia and Astute, the latter of which was acquired in late 2019.
The company operates primarily in the Asia Pacific region for multinational companies and has 875 clients throughout 33 countries.
Image source: Getty Images
Why did the PayGroup share price race higher today?
Well, this afternoon, PayGroup released its preliminary final report for the year ended 31 March 2020.
The company delivered FY20 annual recurring revenue of $17.8 million, exceeding guidance of $17.5 million. Meanwhile, revenue came in at $10.9 million, up 110% on the prior corresponding period, including a $2.9 million contribution from Astute.
Astute provides workforce management solutions, automating placement through to payroll and invoicing. The acquisition was completed on 1 November 2019 and its 5-month contribution to FY20 results have reportedly exceeded forecasts. During this period, Astute has been profitable and cash flow positive.
Overall, PayGroup reported growth across all segments in FY20, including 26.5% growth in PayAsia payslips. This was supported by strong sales momentum and new contract wins from the fourth quarter of FY19 and throughout FY20.
Additionally, PayGroup launched its Treasury Services offering in the second quarter of FY20. Live treasury transactions processed increased from 155 per month at the end of 1H20 to 3,653 per month at the end of 2H20. Given strong initial customer demand in the first year of its launch, PayGroup expects this offering to make a growing financial contribution in FY21.
The company's new contract wins in FY20 amounted to $5.5 million, representing an increase of 12% on FY19. Meanwhile, new contract wins in FY21 to date (being 1 April 2020 to 25 May 2020) total $2.7 million.
Looking to cash flow, the company saw an improvement in its operating cash flow from negative $4.8 million in FY19 to negative $0.1 million in the current period. Cash flow momentum was particularly strong in the second half of FY20 on the back of continued new sales uplift and the Astute acquisition.
The company's cash balance as at 31 March 2020 stood at $2 million, supported by a $3 million capital raising in November 2019.
COVID-19 update and outlook
As previously announced last month, PayGroup's business has been able to adapt to a remote working environment with limited impact.
The company notes that COVID-19 stimulus packages have added to payroll complexity, which increases opportunities for both its Astute and PayAsia businesses. Against this backdrop, its sales pipeline continues to strengthen.
PayGroup expects to continue to deliver improved operating cash flows and the pathway to positive statutory earnings in FY21, driven by cost efficiencies, continued sales momentum and the positive contribution from Astute.
Commenting on the full-year results, managing director and CEO Mark Samlal said:
"We are only 2-months into our FY21 year and we expect that our businesses will continue to perform well, even if various lock down provisions continue to exist globally. In Australia we see that businesses are hiring, particularly contractors, which will positively improve Astute's metrics. Our key markets in Asia are very resilient with many countries back to work."
"We enter FY2021 in a good position, with a strong book of recurring revenue, 95% client retention, a cost efficiency plan and strong industry fundamentals in spite of the current COVID-19 headwinds," he added.
