Digital payments company Novatti Group (ASX: NOV) will save $4 million over the next four years having cleared their balance sheet of debt and corresponding interest payments after selling their stake in business software company Reckon (ASX: RKN) in favourable circumstances.
As shareholders of Reckon, Novatti has earned $15.2 million in cash dividends since acquiring the stake in July 2021. When calculating their $22.5m purchase and aggregate sale price of $8.9m, Novatti walked away from the investment with a neat $1.5m gain.
The strategic stake, however, opened a major partnership between Reckon and Novatti where Novatti’s payment services are being promoted to Reckon’s 110,000 users. The partnership operated under a profit-share agreement between the two companies and will continue.
Plans are already in place for the partners to introduce embedded payments to merchants using Reckon’s cloud-based software, fostering profit-share streams for both companies.
Proceeds from Novatti’s share sale will be applied towards a $10.5 million corporate bond facility which Novatti will redeem and pay back in full, four years before its 2027 maturity date. The early payment will save Novatti approximately $1.1 million per annum in interest costs.
Novatti’s divestment comes as part of a broader strategy led by CEO Mark Healy, who was appointed in June 2023, streamlining 12 individual business units within Novatti Group into four portfolio divisions. The strategy to simplify Novatti’s business has already reflected in revenue growing $0.6m in the September quarter to $10.8m, while expenses were reduced by $1.2m.
These positive indicators reflect Healy’s intent behind streamlining the business.
“Since Novatti issued the corporate bond, it has not been immune to rising interest rate pressure, so saving approximately $4m in interest payments over the next four years will support our strategy to achieve positive operating cash flow by improving margins and controlling costs,” said Healy.
The streamlining has created an immediate focus on Novatti’s Payments – AU/NZ division which has seen its commercial teams streamlined with an immediate uplift in the ability to cross sell digital payment products and services to existing and new Novatti customers.
While Novatti has completed the first phase of its simplification strategy under Healy, they are currently undertaking a Group-wide business review to ensure all business activities align to long term strategic and financial goals. These goals include achieving positive operating cash flow in FY24 having spent the past few years building their digital payments ecosystem, securing the relevant financial licences to launch payment products, and establishing major partnership with some of the world’s largest institutions.
Trading Desk Assistant at Emerald Financial
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