Vortiv shares up 30% after curious update on Indian ATM ownership

Following last week’s cybersecurity attack on major Australian institutions, investors have been bullish on cybersecurity leading to a 30% rise on the share price of Vortiv (ASX: VOR) on Monday but it was a quirky business update that may have investors a bit more curious about the company’s investment in Indian ATMs. 

In their update to the market, Vortiv briefly reported strong revenues for the June quarter expected to deliver $3.6m revenue and $0.5m EBITDA. Alongside sudden interest in cybersecurity which saw rises across the sector, Vortiv also affirmed its focus on Government and financial institutions which make up 72% of the Company’s revenue and were the target of recent cyber attacks. 

“Vortiv, which is on the supplier panel of the federal and all state governments, expects to benefit from this opportunity,” the Company noted. 

However, the bulk of the Company’s business update related to their 24.89% stake in TSI India which owns and manage ATMs for more than 20 major banks in India and offers bill payment services.

In line with their compliance obligations, Vortiv had their passive stake in TSI India valued for the financial year ending 31 March 2020, with 6 global accounting firms valuing the equity between $5.5m and $8.9m. 

In 2019, TSI India undertook a major upgrade of its ATMs network as per Government directive which cost the Company $28m in capital expenditure which was mostly funded by debt. In FY20, however, TSI India’s revenue was down 2.1% to $51.3m with statutory EBITDA down 44% to $1m. Prior to the upgrade, Vortiv reported TSI India to operate approximately 14,000 ATMs but this was decreased to 12,000 in a recent investor presentation. 

With easing of COVID-19 restrictions in India however, Vortiv expects a recovery in ATM transaction volumes for TSI India. 

Interestingly, this comes at a time when RBA Assistant Governor (Financial System) Michele Bullock forewarned that COVID-19 might be the “ultimate disrupter” in her keynote address at the Morgan Stanley Disruption Evolved Webcast on June 3. 

“ATM withdrawals have been on a trend downward decline for a number of years. But the decline seen in March and April was a substantial downward shift in the level of withdrawals,” said Bullock. 

“This no doubt reflects both a decrease in spending overall as people stayed home as well as a shift to other payment mechanisms – contactless cards and online shopping in particular. It seems likely that a large part of this will become a permanent change in behaviour.” 

The Board of Directors at Vortiv ultimately elected to log the low end of the valuations at $5.5m for their stake in TSI India. Although the Indian consumer market is different to that of Australia, Vortiv investors would understandably be hopeful future business updates are driven by growth in the cybersecurity business rather than declining ATM usage. 

For the financial year ending 31 March 2020, Vortiv reported 98% growth in revenue to $11.5m for $1.6m EBITDA. Following the release of their business update on Monday, VOR shares reached their intraday high of $0.26, a rise of 40.5% on the previous $0.185 close before ending the day at $0.24.