Company Reports

Wise reported a fourth-quarter trading update, showing continued good momentum from higher interest income as well as active customer growth (up 29%). For its full fiscal year of 2024, which concluded at the end of March, Wise flagged that its income growth came in at 46% versus the previously guided 42%-44% and our 48% estimate. It also highlighted that adjusted EBITDA margins remain elevated relative to its long-term guidance of at or above 20%. We forecast Wise to retain adjusted EBITDA margins above 26% over the next decade, but the market appears to be even more optimistic than us. We leave our GBX 560 per share fair value estimate unchanged. Shares look expensive.

Wise lifted its guidance for income growth for this fiscal year, which closes at the end of March, after posting another trading update with a strong net interest income contribution. Guidance now stands at 42% to 44% versus the previous 33% to 38%. We raise our fair value estimate to GBX 560 per share from GBX 550 previously. We believe that the boost from net interest earned on customers’ cash balances will be largely transitory. First, Wise is looking to return about 80% of the increase income generated through higher interest rates back to customers in various ways. Second, interest rates in its core markets are set to be cut as early as this year.

In an industry dominated by banks and low pricing transparency, Wise has adopted a low-cost strategy by focusing exclusively on digital channels. Wise has built meaningful liquidity pools across many global currency corridors, allowing the financial-technology company to circumvent foreign-exchange markets for most transactions processed via its platform. Wise operates local accounts in each jurisdiction it is present, allowing the company to move funds between parties wishing to exchange funds without funds ever crossing borders. As Wise acts as a middleman in this transaction flow, effectively forming a currency exchange settling against its own book, the company can save on fees typically paid to banks that form part of the traditional transaction chain. Wise also continues to integrate deeper into local payment networks, starting out by partnering with a local financial intermediary before obtaining its own direct connection, in an effort to further reduce costs and improve transaction speed.

In an industry dominated by banks and low pricing transparency, Wise has adopted a low-cost strategy by focusing exclusively on digital channels. Wise has built meaningful liquidity pools across many global currency corridors, allowing the financial-technology company to circumvent foreign-exchange markets for most transactions processed via its platform. Wise operates local accounts in each jurisdiction it is present, allowing the company to move funds between parties wishing to exchange funds without funds ever crossing borders. As Wise acts as a middleman in this transaction flow, effectively forming a currency exchange settling against its own book, the company can save on fees typically paid to banks that form part of the traditional transaction chain. Wise also continues to integrate deeper into local payment networks, starting out by partnering with a local financial intermediary before obtaining its own direct connection, in an effort to further reduce costs and improve transaction speed.

Wise reported a limited set of data points in its second-quarter trading update. The financial technology company had 22% revenue growth to GBP 259 million, supported by a 3-basis-point larger customer price at 67 basis points and 8% volume growth. Active customers on the other hand grew 32% year over year to 7.2 million. Higher interest rates benefit Wise’s account business, driving additional income from customer balances. In the second quarter of fiscal 2024, Wise earned GBP 86 million in net interest income from funds held in its accounts by its customers versus just GBP 18 million in the same period a year ago and a negligible amount in the years before 2022. Income guidance was lifted as a result of the stronger-than-anticipated net interest income performance to 33%-38% growth in fiscal 2024 from 28%-33% previously. We maintain our fair value estimate of GBX 520 per share and no moat rating.

We are launching coverage of Wise with a fair value estimate of GBX 520 per share, no moat, and a stable moat trend. We believe that Wise is the low-cost provider in an industry that is commoditizing quickly. However, we do not believe that Wise has fully entrenched its competitive positions yet, which would warrant a narrow economic moat. Wise has a first-mover advantage and is gaining scale as a result of it, which could ultimately result in us awarding a narrow or wide economic moat rating in the future. At this stage, we believe that the uncertainty around the replicability of its business model does not warrant such a rating just yet. Our Uncertainty Rating is High, putting Wise into 2-star territory.

In an industry dominated by banks and low pricing transparency, Wise has adopted a low-cost strategy by focusing exclusively on digital channels. Wise has built meaningful liquidity pools across many global currency corridors, allowing the financial-technology company to circumvent foreign-exchange markets for most transactions processed via its platform. Wise operates local accounts in each jurisdiction it is present, allowing the company to move funds between parties wishing to exchange funds without funds ever crossing borders. As Wise acts as a middleman in this transaction flow, effectively forming a currency exchange settling against its own book, the company can save on fees typically paid to banks that form part of the traditional transaction chain. Wise also continues to integrate deeper into local payment networks, starting out by partnering with a local financial intermediary before obtaining its own direct connection, in an effort to further reduce costs and improve transaction speed.