Earthport falls earthwards after focus on margins hits sales

Earthport revealed sales growth slowed in the first half of its new financial year as the cross-border payment group looked to maintain profit margins.

Management of the AIM-listed company decided to reallocate resources towards clients in Asia, India and 'the Middle East-Asia corridor' that offered more scalable prospects, meaning some short-term FX revenues were foregone.

As a result, revenue in the six months to 31 December reached £10.5m, up 18% on the same period a year before but down from the
78% growth in the last full year, which clearly disappointed investors.

On the upside, transaction volume increased more than 70% from the first half of the previous year, with gross margin remaining consistent at approximately 75% in the latest period.

Monetary value of transactions processed increased more than 60%, year-on-year, with a year-end run rate in excess of $11bn and growing, the company said.

A new Distributed Ledger Hub was launched earlier this month to enable clients and banks to access the growing demand for distributed ledger (DL) databases and blockchains that power Bitcoin and other cryptocurrencies.

Earthport believes it has "a uniquely strong competitive advantage" in solving the compliance challenges of utilising DL technology for cross-border payments, beginning with a partnership last August with Ripple Labs, the creator and a developer of the Ripple payment protocol and exchange network.

The new DL hub has been designed to provide full connectivity for users to additional DL's as they emerge.

Investment is also being made in building a bank-grade payments service, which includes customers and partners such as Bank of America Merill Lynch, HSBC, Santander, Stripe and Standard Chartered.

House broker Shore Capital, newly appointed on Monday along with N+1Singer, said without the conscious decision by the company to reallocate resources, it believes revenues would have grown roughly 40-50% and that while there was no indication of profit in the statement, reported cash balance of over £24m indicates the company increased spending during the first half to help win new business after breaking even for a couple of months in the second half.

"Our recent discussion with the company was highly encouraging and there are indications that it is starting to gain traction in Asia, and that non-bank customers, especially in the e-commerce sector, could produce significant accretion to revenue in the medium-term," analyst Peter McNally added.

Shares in Earthport, which in December fell to a two-year low below 25p, were on the slide again on Monday, down 11% on the day to 28.5p by 1230 GMT.