Tyro share price: is the stock misunderstood?

The Bendigo deal

It’s always a shame to be misunderstood.

According to analysts from Morgan Stanley, the payments company Tyro Payments (ticker: TYR) – is one such company that is currently misunderstood by the market. Or at least, a specific opportunity which the company currently has on its hands is misunderstood.

The specific opportunity? Tyro’s partnership deal with Bendigo Bank (ticker: BEN).

Let’s take a look at that deal.

Announced in October 2020, it was revealed that Tyro had entered into a long-term merchant acquiring parternship with Bendigo Bank.

This partnership entails that the company would 'deliver its leading card-present and card-not-present payments solution to Bendigo Bank's merchant acquiring customers.'

At the time, the company said this would result in the rollout of some 26,000 Tyro terminals across FY21. All up, this would take Tyro’s total terminal count to above 89,000. By FY22 Tyro said it expected the Bendigo Bank customers acquired from this partnership would contribute some $5 billion in transaction value, and the gross profit share from the alliance would reach ~$19 million.

At the time, Tyro’s CEO, Robbie Cooke said:

'Partnering with Bendigo Bank will see Tyro's leading proprietary payments platform made available to Bendigo Bank's current and future business customers -- giving them access to more features, more payments options and seamless integration to more than 300 point of sale systems.'

The initial response from the market was an optimistic one, with the stock rising firmly on the day of the partnership announcement.

Despite that, the stock trades around where it did when the alliance was first announced. This comes after Tyro faced terminal outage issues at the start of 2021, putting selling pressure on the stock and seeing it fall out of favour with investors.

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Misunderstandings

Currently, with the rollout of its terminals to Bendigo customers commencing, Morgan Stanley argues that the deal is worth revisiting. Centrally, while the investment bank believes the market understands the initial impact this deal may have on Tyro’s operational performance, it is argued that the market does not understand the potential secondary implications.

As is pointed out by Morgan Stanley:

‘we see considerable further upside potential firstly from another estimated ~44k BEN SME customers

who are currently not using BEN's payments solutions, but will have TYR's solution pitched to them as part of this deal.’

By fiscal 2024, the investment bank’s base-case is for Tyro to have onboarded 24 thousand Bendigo merchants.

Beyond those points, the investment bank believes Tyro will steal further market share from the big four banks in the coming periods and that the company is well placed due to the structural growth opportunity of digital payments.

Morgan Stanley has a Overweight rating and $4.60 price target on Tyro.