With inflation surpassing the 60% mark as at February 2019, Cassava's revenue growth, at 94.4%, for FY19 seems exceptional, notwithstanding the change in functional currency and monetary reforms, which included the introduction of a 2% Intermittent Monetary Transfer tax on all electronic payments for transactions more than $10 in October 2018. Furthermore, the separation of hard currency accounts (FCA Nostro) and local currency accounts spurred the nation into panic buying, which gave an uplift to Cassava's 4Q19 revenue. Cassava Smartech listed on the ZSE on the 18th of December following approval by Econet shareholders, where Econet has reserved 20% of Cassava's share ownership.
For the period under review, Ecocash subscribers grew from 7.8 million in FY18 to 9.8 million, while Steward Bank now boasts 1.3 million bank accounts, representing 37% of Zimbabwe's banked population. In addition, subscriptions to micro-insurance packages grew to 2.6 million from 1 million. Although transaction volumes through the National Payment System (NPS) declined post-October 2018, the rest of FY19 was marked by the surge of bottom-of-the-pyramid liquidity as the tobacco and gold mining industries posted record earnings. Thus, Cassava reported a revenue growth of +94.4% y/y to $501.1 million for the FY19 from $257.8 million in FY18. The group's EBITDA for the period under review surged +60.1% y/y to $180.8 million from $112.9 million in FY18, yielding an EBITDA margin of 36.1% vs 43.8% in FY18 due to mounting inflation.
A net exchange loss of $28.0 million due to the change in function currency was recorded, bringing the technology company's PAT to $104.3 million in the period, up 47.5% y/y from $70.7 million in FY18. The company remains cash generative with Net OCF closing the year at $233.1 million vs $300.1 million in FY18, yielding an OCF/EBITDA ratio of 129% vs 266% in FY18. Total assets grew to $1.5 billion from $657.1 million, whilst total liabilities closed the year at $1.3 billion vs $535.2 million in FY18. Capital expenditure amounted to $70.7 million in FY19 yielding a capex-to-income ratio of 14%, which is above the company's target of 10%. Cognisant of the prevailing market conditions and the company's capital expenditure requirements, the board has decided not to declare a dividend for the 4-months ended 28 February 2019.
Further digital disruption key to driving growth
In response to heightened shortages of physical cash, Zimbabwe has been forced to evolve from a predominant cash culture to a growingly cash-less society. However, following the re-introduction of the Zimbabwe dollar, through the announcement of Statutory Instrument (SI) 142, the government is set to inject $400mn worth of bond notes and coins into the monetary system. We expect this move by government to exert a level of pressure on Ecocash in the short-term given the preference for cash transactions in the informal sector - which contributes over 60% of the country's GDP.
Already the informal sector is shunning electronic and mobile money payments, including Ecocash, in favour of cash payments, with Ecocash payments attracting an additional 20-30% charge. Nonetheless, we expect transaction values to remain robust on increasing money supply and mobile money usage which accounts for 25% of transactions processed through the National Payment System (NPS). We expect performance in FY20 to be catapulted by Cassava's increasing portfolio of financial intermediation services, ranging from airtime top-ups and P2P, bill payments, payroll and bulk payments, merchant payments, individual and group savings, nano loans and international remittances.
Ecocash has partnered with Paynet to provide secure, encrypted and tested bulk salary payment services following disturbances faced by Paynet's 5,200 clients in June 2019. Furthermore, Ecocash launched a new service, Ecocash Micro Service, a portal which facilitates self-service without the need to visit any Econet shop or an agent for registration and transaction reversal, making it even easier to join the largest mobile money provider in the country. The same concept has been applied to Steward Bank registrations through the *236# Bankservice launched in December 2018 to facilitate Econet subscribers with opening accounts and accessing collateral-free loans (KaShagi micro-loans) from their mobile phones. We believe Cassava's strides towards further digital disruptions in the micro-insurance and micro-finance spaces will propel the business further despite the current macro-economic landscape.
Maintain HOLD recommendation at current levels
We expect momentum in Cassava run-rates to continue in FY20 on sustained adoption of mobile money and improved insurance penetration. The unbundling and separate listing of Cassava in our view increases the strategic focus on the business strategy. Our equity valuation for Cassava implies a PBV of 0.81x for Steward Bank and places an equity value on Steward Bank of $156.20mn. Applying an EV/EBITDA valuation based on peers operating in the digital payment solutions and fin-tech industry, we place an enterprise value of $4,585.78mn (blended FY20/21) for the Fin-Tech silo. Applying a 10% discount on the SOTP on both the growth model and multiples-based valuations, we arrive at TP of $1.65 on Cassava, yielding upside of 0.20% at current levels. We, therefore, maintain coverage on Cassava SmarTech with a HOLD recommendation.