Direct carrier billers (‘DCB’) provide a fast-growing, low-friction payments mechanism to consumers which is positively exposed to strong structural eCommerce tailwinds. These tailwinds continue to blow post-pandemic, and growth in consumer payment volumes are projected, by industry forecasters, to remain strong for all UK-listed DCB operators. Payment platforms are also synonymous with high gross margins (>90%), with drop through from incremental revenues high. Yet augmenting this attractive backdrop, we see opportunity for fundamentals outperformance driven by: 1) consensus conservatism; and 2) exposure to other alternative payment methods.

We calculate consensus conservatism either implies overly cautious views around ‘take-rate’ or a contraction in global GDP growth to 0.5% for the next 2-years (in-line with 2007/2008 growth and below the IMF’s forecast of 3.6%) – with a number of factors which could drive outperformance for UK-listed players. For Bango, there are also emerging opportunities in Performance Marketing and Platform Licensing, leveraging existing capabilities in these growth areas.

Stocks mentioned in the note include:

Boku (BOKU), Bango (BGO) and Fonix Mobile (FNX)

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