EasyEquities shows strong growth – but not enough for investors

Purple Group released its results for the year ended 31 August 2022, which showed group revenue increased by 33.8% to R274 million.

Profit before fair value adjustments and tax increased by 55.2% to R40.3 million from R26.0 million in the prior year.

Basic earnings per share decreased by 16.8% to 3.71 cents per share, compared to 4.46 cents per share in the prior year.

Headline earnings per share decreased by 74.3% to 1.14 cents per share, compared to 4.46 cents per share in the prior year.

Although Purple Group operates three units – EasyEquities, GT247.com, and Emperor Asset Management – all eyes were on EasyEquities.

Although Purple Group only owns 70% of EasyEquities – the other 30% is owned by Sanlam – the share trading platform contributes the biggest chunk to group revenue.

EasyEquities is also the biggest growth driver in Purple Group’s stability and the reason the share price is trading at a price-to-earnings (P/E) ratio of over 30.

With such a high P/E, exceptional growth is baked into the share price, and any slowdown in growth is punished severely.

As with most growth stocks trading at elevated multiples, Purple Group’s share price was hammered in 2022.

Purple Group’s share price year-to-date declined by 47% – from R3.00 per share in January 2022 to the current price of R1.58.

EasyEquities growth

While the market expected more from Purple Group and EasyEquities specifically, the trading platform had a good year.

Client numbers continued to grow strongly, with active clients up 50.4%, having added around 250,000 new first-time investors over the last year.

The client growth helped the platform decrease the cost of service per active client by 15.6% to R173.

EasyEquities’ investment coverage was expanded to include South African Unit Trusts and UK and European Shares and ETFs.

Purple Group CEO Charles Savage said EasyEquities clients deposit and invest more, they consume more products, and the average revenue per user (ARPU) increased.

The trading platform’s clients are also extremely loyal and, on average, refer one new client per two existing clients.

EasyEquities’ revenue increased 24.2% from R172 million to R214 million, continuing its strong growth trend over the last six years.

While subscriber and revenue growth remained strong, there was a blemish in EasyEquities’ performance.

Profit before fair value adjustments and tax decreased by 34.7% to R34.4 million from the previous R48.1 million.

The low profit was a result of significantly higher operating expenses and slightly higher commissions and research expenses.

Apart from the profit hit, another concern is that EasyEquities’ growth has slowed significantly.

Since 2016, EasyEquities has never recorded annual revenue growth below 65%.

However, in the 2022 financial year, the group reported that EasyEquities only managed to increase its revenue by 24%.

In absolute terms, Purple Group generated strong revenue growth. However, the market expected more, considering its high valuation.

As a result, the Purple Group share price declined significantly on the latest results.

EasyEquities results summary