There are very few truly scalable, tech rich stocks listed in London that are generating strong double digit sales growth, 50%+ gross margins, and  plenty of cash. Equals (EQLS) is one. After seeing the share price more than triple over the past three years, the company is the gift that keeps on giving.

It posted record H1 23 results today, with adjusted EBITDA and fully diluted EPS coming in at £9.8m and 3.27p, respectively, on revenues up 43% to £45m – that was driven by standout transaction volumes from large/medium sized clients. It also increased gross margins from 47.4% last year to 52.4%, closing June 2023 with £16.6m of net liquidity, upgrading FY23 guidance, and announcing a maiden dividend of 1.5p a share, subject to shareholder approval.

Interestingly, software capitalisation of £2.4m in the half was in line with amortisation costs of £2.5m, which meant adjusted operating profit margins of 13%  are now in balance too. That further underlines the Board’s confidence in future revenue visibility, profitability and cashflow generation.

Better still, I believe Equals is perfectly positioned to ‘lift & shift’ its best-in-class UK fintech platform - with its own-name multi-currency IBANs and bank-grade connectivity - into Europe following its recent Oonex acquisition in Belgium, now rebranded as Equals Money Europe. If successful, that could turbo-charge performance over the coming years. 
 
Perhaps not surprisingly, I’ve raised my FY23 forecasts to EBITDA of £19.8m on revenues +33.5% higher at £93m, alongside nudging up the valuation to 170p a share.

Moreover at 100p, the stock trades on modest EV/EBIT multiples of 14.1x and 9.7x for this year and next, which frankly looks too cheap considering adjusted EPS is set to climb to 12.1p by 2026 from an estimated 6.2p this year, a 24% compound annual growth rate. That's equivalent to a PEG ratio of <0.7x , whilst similarly offering a handy 1.5% dividend yield.

CEO Ian Strafford-Taylor commented: “This is an outstanding set of results with record revenues combining with improved gross profit & continued cash generation. Enabling us to announce our intention to pay our maiden dividend of 1.5p/share for FY23."

“[Elsewhere] the acquisition of Oonex SA allows Equals to widen its distribution & addressable markets, and the integration of the business is proceeding according to plan. Given the current trading, and a robust sales pipeline, we look to the future with increased confidence, and we expect to be [ahead of expectations] for the full year.”

EQLS