Smartphone with Revolut logo is placed on the U.S. dollar banknotes in this illustration taken February 4, 2020. REUTERS/Dado Ruvic/Illustration
Revolut must prove it is more than a cheap source of holiday cash © Reuters

Pick a number, any number. $5.5bn? That’ll do.

Revolut has raised $500m in cash from investors, which values the neobank at $5.5bn. That seems bonkers. And it is. But Revolut’s backers could be getting closer to the right number, even if it’s for the wrong reasons.

There is more logic to the latest valuation than when Revolut last tapped investors in 2018. Early fintech funding rounds owed a lot to crude calculations of value per customer, not potential profitability. With 1m users, rival Monzo secured a £1bn valuation from investors; at 2m, a £2bn valuation. When it had 2m users, Revolut was deemed to be worth $1.7bn. Now it has five times that many customers, but its valuation is only three times as high.

Revolut still hasn’t turned a profit. Losses more than doubled to £33m in 2018, the most recent period for which numbers are available. But at least it made headway that year — revenues rose faster than costs.

Other strategic shifts look promising for profitability, too, if not the global domination that earns out-of-this-world multiples. Where Revolut used to shout about taking on the US, now it talks of expansion closer to home.

If it can make the most of what it already has — a European banking licence, exposure to markets in central and eastern Europe that are less competitive than the UK, and making more money out of its existing customer base — that will help Revolut grow into the $5.5bn valuation.

Nonetheless, there is a lot of growing to be done. Revolut must prove it is more than a cheap source of holiday cash. It must get customers to use their cards at home, too. Customers have so far been unwilling to break up with their existing banks.

The danger is they never will. Data from Accenture show that in the UK, average deposit balances at neobanks fell, not rose, in the past six months.

There is more than a whiff of “finger in the air” about rocketing fintech valuations, particularly at the top of an investment cycle. All sorts of figures were bandied about for Revolut, from $5bn up to twice that.

The cynic in Lombard cannot shake the question whether $5.5bn was the product of careful calculation.

Rather, did management suggest they weren’t settling for less than Europe’s most valuable privately owned fintech, Klarna, which achieved a $5.5bn price last summer? In the barmy world of fintech that may seem as good a reason as any.

De La Rue’s last redoubt

De La Rue has been printing paper since before the Battle of Waterloo. It is unlikely to be doing so for another 200 years.

It is battling to last even a decade. In October the group muttered about being a going concern. Earnings before funnies in the year to March are now expected to be a third of what they were a year ago. The shares are a third of what they were too.

On Tuesday the group said operating profits would be no more than £25m. Net debt stands at close to 2.5 times ebitda. De La Rue said hastily it was not in breach of its banking covenants. But the new management team is now in crunch talks with its lenders.

The team’s sketched out turnround plan is predicated on cutting £35m in costs to boost margins and reinvesting in the two core businesses — making polymer banknotes and anti-counterfeit holograms and tax stamps — to boost revenues.

It all hinges on the banks and the pension regulator agreeing to relax terms so that the group can draw down more of a £275m credit facility that expires next year anyway. Investors are as optimistic as Dorothy hopping her way along the yellow brick road. The shares bumped up nearly a fifth to 145p. But De La Rue’s options are diminishing as fast as banknotes in the Square Mile or in Tesco stores. If lenders and the pension watchdog do not give the nod, De La Rue will have to turn to investors for cash.

SIG: not simple to fix up

Steve Francis, last seen at Patisserie Valerie, specialises in short contracts and wobbling corporates, whether in cakes or construction. He was hired by Luke Johnson to head PatVal just weeks before it went bust. Now he has turned up at roofing and builders’ merchant SIG, where Meinie Oldersma has left the chief executive’s office. The finance director has gone, too.

SIG might be an easier fix than PatVal but hardly a doddle. Mr Oldersma, a turnround merchant too, has already done much of the heavy lifting. In three years he slashed the workforce by 40 per cent, ditched 20 businesses and turned the group’s debt into cash.

However, Mr Oldersma also twice warned on profits. Delayed pre-tax profits, due out in April, are expected to have halved to about £40m. Mr Francis is on a contract until December. That’s not much time to print his name on the door — let alone fix up SIG.


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