Tyro Payments (TYR) is a technology-focused company providing Australian businesses with payment solutions and business banking products. Tyro provides simple, flexible and reliable payments solutions as a merchant acquirer, along with complementary business banking products. We maintain our $2.60 per share fair value estimate for Tyro. Adjusted EBITDA, Tyro’s preferred profitability metric, of $42 million for FY23 was broadly as expected. The lower-than-expected payments gross profit margin, given higher processing costs, is slightly disappointing, but resilient Tyro bank margins offset this downside. Strong volume growth and effective cost control helped Tyro realise its first full-year net profit after tax of $6 million. The improved operating leverage trend has continued into FY24. Notably, Tyro expects a stronger FY24 than our prior forecasts. Guided transaction volumes, gross profits, and EBITDA beat our projections by 11%, 15%, and more than 100%, respectively.
Business fundamentals appear to be improving at a swifter pace than we initially expected, and the expected consumer spending downturn has yet to eventuate. Our unchanged fair value accounts for an increase in near-term volumes and slightly reduced operating expenses, offset by more modest medium-term volume growth and higher processing costs. Our FY2024 forecasts are at the low end of guidance as we expect consumer spending to soften. Tyro is undervalued. Economic headwinds aside, we expect market share gains, operating cost control, and gradual savings in variable costs to drive profit and free cash flow growth from FY24 onward. Further share gains are likely from expanding its merchant categories, rollouts, and adoption of new products, and more large-scale partnerships.