Payfare Inc. (TSX: PAY) is a Canada-based financial technology company, offering instant payment, mobile banking, and loyalty reward solutions. The company has strategic ties with platforms and marketplaces such as Uber, Lyft, and DoorDash to provide financial security and inclusion for their workforce.

Key highlights

• Enhanced Digital Banking Solution: On February 24, 2022, the company announced the initiation of ‘Early Direct Deposits’ a facility that will enable its majority of users, gig workers (freelancers), to enjoy flexibility in how they get paid to reduce or eradicate the requirement for the predatory lending products. This feature will result in the diversified source of other user earnings being loaded in the ecosystem of Pafare, which is directly correlated to revenue generation. With this additional feature, its users can use Payfare account as their main account for all the transactions related to their incomes and expenses.

• Strong End of 2021:Recently, the company stated it achieved more than half a million active users on its platform. This active users number is recorded at an increase of 40% from Q3FY21 and the numbers are magical when compared over Q4FY20 coming at 830%.

• Q3FY21 Results: On November 10, 2021, Company announced its Q3FY21 results, stating a 45% rise in its revenues to CAD 12.68 million as compared to the revenues of CAD 8.72 million Q2FY21. Further, the company transitioned into gross profits of CAD 0.60 million in Q3FY21 from the negative gross margins in pcp. The increase in active users and various other initiatives along with the rise in the gig workforce during the COVID-19 period are a few of the key reasons for such game-changer in the financials of Payfare.

• Technical aspect: The stock showed a steep rise from the levels of CAD 6.30 in May 2021 to print the lifetime high of CAD 13.79 in July 2021 and from there it was sold off on every rally. One of the leading indicators: Relative Strength Index is currently showing a reading of 34.21 which came after dipping in the oversold territory of 30 levels. In a few instances, the stock price tried to breach the 50 DMA and currently sustaining below it.
  

Risks associated with investment

The company is primarily catering to the needs of the gig workers, also known as freelancers, whose incomes depend upon the contracts, assignments, and the health of the economy, to name a few. With sudden slowdowns, this kind of workforce is the one who is more vulnerable in finding opportunities within the market, thereby hampering the Payfare financials in the event of a decline in its active users. Further, to keep the customers intact, the company has to keep innovating in terms of giving Cash back, rewards, etc which will further dent the margins of the company at times. 

Stock recommendation 

The company doesn’t carry any debts on its books, which is a major relief in the event of rising interest rates. The growth it reported both in the revenues and active users are astonishing, and given the trend, it seems to prevail, can act as a booster shot to its financial in coming quarters. The stock has been sold off at previous rallies and now forming support around CAD 5.80 to CAD 5.50 levels. The stable prices at these levels, when coupled with the inching up Relative Strength readings, can garner the attention of the investors for further analysis.

Therefore, based on the above rationale and technical analysis, we recommend a “Watch” rating at the closing market price of CAD 6.06 on February 23, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on February 23, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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