Cuscal’s top 10 clients were responsible for 57% of Cuscal’s fee and commission revenue in FY2024, the prospectus for Cuscal’s upcoming initial public offer shows.
Cuscal “maintains long-term relationships with its clients and generates the majority of its revenue through long-term contracts”, the prospectus explains, but prospective investors will be alert to the risks that one or more key clients may walk at any time.
Square is believed to be Cuscal’s largest client, and the hot industry rumour is that Square is, or at least very recently was, exploring a move away from Cuscal to another payments processor.
In FY2024, Cuscal had approximately 64% of its revenue attributable to contracts with two or more years remaining in the initial service period.
The prospectus is forthright on the nature of Cuscal’s business and its distinctive (but not unique) proposition as a B2B provider in the domain of payments processing.
Its target market is broadening as the number of payments fintechs climb, but growth in this segment brings a range of risks.
The Cuscal prospectus is especially candid on a range of risk management challenges testing the business.
The “diversification in clients” over recent years “has resulted in broader demand for products, with Cuscal able to tailor payments solutions to suit the varying needs of each client segment.
“It has also broadened Cuscal’s exposure to a wider set of payments participants, including (in limited cases) Digital Currency Exchanges (DCEs).”
Cuscal said it “does not have any clients that are DCEs, however some DCEs are customers of Cuscal’s clients.
“In the last 16 months, Cuscal has implemented a number of limitations on its PSPs’ clients ability to provide services to DCEs and has enhanced its capabilities around monitoring of PSPs and their merchants.”
Clients’ indirect exposures to Digital Currency Exchanges thus may be the chief risk for Cuscal to manage. Cuscal is believed to have recently engaged KPMG to review its exposures to DCE risks, and Cuscal’s assertiveness in managing these risks might easily cost it clients (and has).
Following a (much improved) net profit of $31.4 million over the year to June 2024, Cuscal has forecast an FY2025 net profit of $36.6 million, based on a six per cent increase in revenue to $299 million.
Cuscal forecasts a modest decline in expenses next year to $237 million.
Cuscal plans to raise $337 million via the IPO, with 88 per cent of the proceeds flowing to existing shareholders selling into the offer.
One of these, Great Southern Bank, is likely to realise a material gain after buying up the Cuscal shares of a range of mutual banks and credit unions over recent years.
Great Southern Bank owns 14.8 per cent of Cuscal currently, and this will fall to 6.8 per cent following the IPO.