Bumper numbers help paper over the woes of Wise
Wise’s regulatory and reputational troubles have not hurt the bottom line, writes Charlie Conchie
Looking at the numbers, you would think it’s been an exclusively rosy six months for money-transfer firm Wise.
The London fintech said today that pre-tax profits rocketed 173 per cent to £51.3m in the period to the end of September after a record 5.5m people poured onto its platform in the second quarter – a 40 per cent increase on the previous year.
Wise says it has now reached a sustainable level of profitability which has helped it dodge the troubles that have plagued many of its high-growth, loss-making peers as recession loomed.
Shares have rebounded from a mid-year slump to trade down around 18 per cent over the year to date – certainly not all positive, but markedly more so than the 60 per cent discount Wise was facing in June.
But Wise, often heralded as one of London’s fintech success stories, has been dogged by troubles in the six months to September.
A regulatory investigation into its chief and co-founder Kristo Käärmann over a 2017 tax dodging scandal rocked it share price in June and has left questions hanging over the future leadership of the firm.
The firm’s finance chief Matt Briers insisted to Morning Wire in an interview today that the investigation was not front of mind for its investors. But powerful shareholder proxy groups and analysts have said they think otherwise.
Glass Lewis, one of the largest advisory groups, warned in September that the Sword of Damocles hanging over Kaarmann could damage shareholder value in the longer term. While they withheld their judgement and backed Kaarmann ahead of its AGM, the unspoken warning was that they may be forced to reconsider.
Kaarmann’s troubles have also not been the only of Wise’s woes. The firm’s Abu Dhabi subsidiary was slapped with a $360,000 fine after the Abu Dhabi regulator deemed it had failed to “establish and maintain adequate AML systems and controls to ensure full compliance with its AML obligations”. Wise in its defence said it quickly resolved the issue and “no instances of money laundering or other financial crime were identified”.
However, analysts at Hargreaves Lansdown said the issues hanging over the firm had made investors wary of ploughing in their cash.
“Wise is still very much on a report card given that it’s been the subject of an investigation by the Financial Conduct Authority for its CEO tax payments, and that is partly why investors have been slow to applaud significant progress made over the first half of the year,” Susannah Streeter, senior investment analyst told City A.M.
Shrugged off
Still, Matt Briers tells City A.M. that the reputation issues have not dented the bottom line and it is set for another period of bumper growth in the months ahead.
“We’re growing healthily in many jurisdictions,” he says. “[The] cost of living and inflationary trend is a really a global problem. We’re seeing benefits in the amount of money customers are moving.”
Briers adds that “when money gets tight” consumers “pay as you can”, which is leading more consumers and firms to lean on the money transfer firm’s products.
Wise has also benefited from a diversification of its customer base as businesses turn to its commercial offering to send cash around the world. Briers adds that Wise is now poised to ramp up its investment and claims it is among a “select set of companies” that are able to pump cash into the business while growing profitably.
Analysts too say they see significant upside ahead for Wise. Barclays wonks wrote in a note today that their previous income estimate of £48m for the second half of the year “now looks relatively conservative” and they predicted the firm would ease past its guidance for the year.
Reputational and regulatory issues at Wise have therefore not yet disrupted its performance. Kaarmann and co will be hoping ‘long may it continue’.